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Health, Beauty & Fashion

Interest-free plans for luxuries

Luxury retailers are offering zero-interest instalment payment plans to customers, making it easier to buy expensive items
The Sunday Times - February 12, 2012
By: Melissa Kok
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Interest-free plans for luxuries Larry Jewelry offers zero-interest payment plans to cater to younger customers. -- ST PHOTO: JASON QUAH

If you have your heart set on a luxury watch or designer handbag but cannot afford it, there is a way to get what you want without burning a hole in your pocket.

Charge it to your credit card on an interest- free instalment payment plan.

More luxury retailers selling items such as branded watches, jewellery and handbags are tying up with banks to offer this payment option to customers for convenience and ease in making a pricey purchase.

Shoppers opting for this mode of payment - often working professionals in their 20s and 30s - told LifeStyle that it is a way for them to buy a luxury item that can cost up to more than a month's salary, without feeling the pinch. This, provided that they can make the monthly payments on time.

If they default on the payments, they will be charged an interest on the amount outstanding - credit card debts usually attract an annual interest rate of 24 per cent.

Interest-free payment plans allow consumers to charge the full cost of the item to their credit card, but they get to pay it off, interest-free, over an extended period of time, which can range between three and 36 months.

Banks here introduced instalment payment plans as early as 2003, and the plans have been particularly popular among consumers purchasing gym and spa memberships, furniture and electronic products.

Mr Harmander Mahal, head of wealth and consumer Assets at HSBC Singapore, said: 'It helps them to be able to afford big-ticket items at important life stages such as shopping for wedding jewellery, furnishing their first home or planning that well-deserved long vacation.

'The take-up rate for this plan is generally higher for bigger ticket transactions such as electronics, watches and jewellery.'

OCBC bank notes that it has seen more of its customers opting for interest-free payment plans, with 'a month-on-month increase in take-up'.

It is no wonder, as the last couple of years have seen more retailers selling branded accessories, such as online retailer Reebonz, jumping on the bandwagon.

The three-year-old e-commerce business, which sells designer handbags and accessories from international labels such as Mulberry, Miu Miu, Balenciaga and Prada online, started offering instalment payment plans with credit cards in 2010.

The company offers its registered members a choice to spread their purchase amount over six or 12 months. The bags sold on the website can cost up to $3,000.

A spokesman for Reebonz, who noted that the take-up for this mode of payment has been 'good', especially among female professionals between the ages of 25 and 35, said: 'We want to make luxury conveniently affordable to our members and figured that offering multiple payment options is one such convenience.

Usually, the minimum spend - which is set by the banks - can be as low as $300, and the maximum depends on the consumer's credit limit.

Larry Jewelry's retail director Eric Tay said it started offering instalment payment plans a few years ago to 'make its jewellery more accessible to younger customers'. Mr Tay estimated that around 2 per cent of monthly sales from their two boutiques in Ion Orchard and Paragon are on instalment plans, usually from customers in their early 20s and 30s. They purchase mostly diamond rings costing $8,000 and above.

Mr Darren Ng, a spokesman for All Watches, a luxury watch retailer that sells branded watches from Breitling, Baume & Mercier and Tag Heuer, said his company started offering instalment payment plans to its customers six years ago.

He added: 'It has been getting increasingly popular as it allows people to defer payment and have more cash on hand. It also means that the net is spread wider as people who previously can't afford one-time payment can have an alternative payment method.'

As much as such instalment plans offer convenience and flexibility in payment, those who opt for it still prefer to be discreet about their activities.

A 27-year-old sales executive who wanted to be known only as E.L Tan told LifeStyle that she has purchased gym and massage packages, and designer handbags on instalment, usually paid over a year.

Miss Tan, who earns a monthly salary of between $3,000 and $4,000 and sets aside a spending budget of $200 a month on luxury items, said: 'Even though I had the money in my bank, I didn't want to spend all of it at a go. I thought the zero-interest instalment plan was brilliant as it allowed me to purchase a designer bag and pay as I use it.'

However, Ms Tan Huey Min, general manager of Credit Counselling Singapore, cautioned that there is a high risk of running into debt, especially if you are an impulsive shopper.

She said: 'The instalments will run for the next 12 or 24 months or longer, and servicing multiple instalments could take away a chunk of one's income and potentially affect payment for living expenses. Cash flow could be very tight, or worse, income may not be enough to cover the expenses.'

Miss Tan advises consumers to give themselves a seven-day 'cooling-off period' before buying an unplanned-for item, so you are sure you can pay for it.

She also advised against making multiple instalment plan commitments as it can make your financial budget 'inflexible'.

'Because when there is an adverse change in one's financial position, for example a pay cut, the impact will be great and it will be more difficult to make necessary adjustments.'



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