Have you got a credit card and want to know how credit card installments work? Here's some useful information.
Using credit cards is a convenient way to pay for products and services in person and online.
What's more, your credit cards can earn you rewards, such as cash back, points or miles - on purchases you would make anyway. Responsible spending will also help you build your credit along the way.
Of course, letting your credit card spending get out of control can lead to mounting debts, excessive interest, late fees and bad credit. Here's how credit card installments work.
How credit card installments work
The first step to understanding how installments work on a credit card is to know that your purchases cannot exceed the limit available on the card.
Regardless of how many installments you intend to make, the limit cannot be exceeded.
You may ask yourself, but what are the benefits of paying in installments?
The main benefit of paying in installments for purchases or services is that you pay the same amount in installments. Let's take an example of this, let's say you want to buy a TV worth R$ 1500, and your limit is R$ 1500, instead of paying a bill of R$ 1500 you can divide this amount into 10x, that is, pay installments of R$ 150 reais which will total the same value as the TV.
How do I make installment purchases on my credit card?
Payment in installments works as an agreement between the buyer (cardholder) and the bank. credit card issuer. This gives you time to pay off your bill by paying predefined monthly amounts.
While some banks guarantee installments of up to 24 times, others offer 12. In addition, there may or may not be interest on the total value of the goods.
To pay in installments, just talk to the seller. For online purchases, choose the installments when completing the payment.
How do credit card payments work?
After making purchases with your credit card, you will receive a credit card bill every month.
It's important to know that you won't be obliged to pay the full balance every month, although it may be in your interest to do so. Instead, you only need to make a minimum payment, which usually ranges from 1% to 3% of the outstanding balance (plus interest and fees from the previous month).
When possible, it's best to pay the balance in full. Although it may seem attractive to make only a minimum payment, it's important to remember that money spent is not free.
Any outstanding balance on your credit card is subject to additional interest compounded monthly. Paying only the minimum balance is fine if you're in trouble, but doing so over a long period of time can lead to credit card debt that only seems to grow.
After making a payment, the bank or credit card issuer reports your payments to the credit agencies.
Make sure your payment is on time by setting up automatic monthly payments for the minimum amount or another amount of your choice. Most banks also offer e-mail or cell phone notifications to alert you when the due date is approaching.
What is credit card processing?
Once you've understood how credit card installments work, you'll know that receiving a credit card payment may seem simple enough: the customer hands over the card, you process it and the money lands in your account the next business day. But under the hood, there's a lot more going on. And this is where the card processing system comes into play.
From the moment you tap or insert the card to the moment the money is deposited, there are several parties involved, each dealing with a crucial step in the card processing chain.
Knowing how all this works helps you understand where you might incur fees and informs your decision when choosing a credit card processing system for your company.
The parties involved in credit card processing
Imagine you went into a coffee shop and bought a coffee with your card. Here are the official names of those involved in the transaction:
- The cardholder: is the person with the credit card (like you)
- The credit card: that rectangular piece of plastic with your payment credentials (e.g. Mastercard or Visa).
- The merchant: the company that accepts your credit card as payment for goods or services (the café)
- The point-of-sale system: the interface used by the merchant to accept credit card payments.
Now let's zoom in for a second. There are some additional parts represented in the credit card and what is happening during the transaction itself. They are an integral part of the card processing journey. They are:
- THE issuing bank
- The acquiring bank
- The commercial service provider
Now that you know how credit card installments work, it's important to remember that the most advisable thing is to always pay your bills on time, thus avoiding excessive credit card interest. Did you like the information above? Then leave a comment below.
