The Dollar in the Future
Have you got a credit card and want to know how credit card installments work? Here is some useful information.
Using credit cards is a convenient way to pay for products and services in person and online.
Plus, your credit cards can earn you rewards—like cash back, points, or miles—on purchases you’d otherwise make. 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 debt, excessive interest, late fees, and bad credit. Here’s how credit card installment payments work.
The first step to understanding how installment works on a credit card, it means knowing that your purchases cannot exceed the limit available on the card.
Regardless of how many installments you intend to pay in installments, the limit cannot be exceeded.
You may be wondering, but what are the benefits of paying for a purchase in installments?
The main benefit of paying for purchases or services in installments is that you pay the same amount, but in installments. Let's give an example of this: let's say you intend to buy a TV for R$1,500, and your limit is R$1,500. Instead of paying a bill of R$1,500, you can divide this amount into 10 installments, that is, pay installments of R$1,500 that will total the same value as the TV.
The installment payment of the card bill works as an agreement made between the buyer (cardholder) and the credit card issuer. This saves you time to pay your bill by paying predefined monthly amounts.
While some banking institutions 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 merchandise.
To pay in installments, just talk to the seller. When shopping online, choose the installments when completing the payment.
After you make purchases with your credit card, you will receive a credit card statement every month.
It's important to know that you won't be required to pay the entire balance each month, although it's in your best interest to do so. Instead, you'll only be required to make a minimum payment, which typically ranges from 1% to 3% of the outstanding balance (plus interest and fees from the previous month).
When possible, it’s best to pay off your balance in full. While it may seem appealing to make just a minimum payment, it’s important to remember that the money you spend isn’t 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 a pinch, but doing so for a long period of time can lead to credit card debt that only seems to grow.
After you make a payment, your bank or credit card issuer reports your payments to the credit bureaus.
Make sure your payments are on time by setting up automatic monthly payments for the minimum amount or another amount of your choice. Most banks also offer email or mobile notifications to alert you when the due date is approaching.
Once you understand how credit card installments work, you’ll know that receiving a credit card payment may seem pretty straightforward: the customer hands over the card, you process it, and the money hits your account the next business day. But under the hood, there’s a lot more going on. And that’s where the card processing system comes into play.
From the moment you tap or insert your card to the moment your money is deposited, there are multiple parties involved, each handling a crucial step in the card processing chain.
Knowing how all of this works helps you understand where you may incur fees and informs your decision when choosing a credit card processing system for your business.
Imagine you walked into a coffee shop and bought a coffee with your card. Here are the official names of those involved in the transaction:
Now let’s zoom in for a second. There are a few additional pieces represented in the credit card and what’s happening during the transaction itself. These are an integral part of the card processing journey. They are:
Now that you know how credit card installments work, it is important to remember that it is best to always pay your bills on time, thus avoiding excessive interest on credit cards. Did you like the information above? Then leave a comment below.