Sometimes, life decides to throw you a curveball. Between having to pay for your monthly fixed expenses, your car needing major repair, and at the same time having to buy a new refrigerator as the old one has completely stopped working. Such situations do happen. Need to make big purchases, but don’t have enough Cash to pay for it all at once? Here is a list of alternatives when you find yourself in such a predicament.
For items you can actually afford: Use Cash
Sometimes, the convenience of paying with a credit card can encourage you to spend on items you did not plan on buying in the first place. By paying with a credit card, you may think, it’s no harm. Therefore, to avoid this from happening, pay with cash as it will require you to physically hand the cash, and you see the actual amount. Paying with cash can also help to prevent you from buying and paying for features you don’t need.
Aside from that, by paying for cash, you lower the risk of having to incur interest and other charges. If you don’t have enough cash at the moment, but you know that you can pay it off in cash next month or when you get your salary, why not consider loaning the money from family or friends? This way, you won’t incur any extra charges, and you will also be on track to only buy what you can afford to pay back.
For Most Big Purchases: Credit Card 0% Instalment Payment Plan
Instalment payment plan is a credit card feature which gives you the flexibility to make payment for a substantial amount then, repay it in instalments within a certain period. The duration for the instalments will depend on the financial institutions or credit card issuers. However it usually ranges from 3 months to 24 months. Instalment payments are particularly useful for larger purchases such as electrical items and furniture. However there are certain things you need to know to take advantage of this feature.
In order to take advantage of an instalment payment plan, make sure it offers you a zero percent interest rate. Aside from that, depending on your credit card issuer and participating merchants, sometimes there may be a one-off payment or other fees involved when you use this feature.
Before you make that big purchase you have been eyeing, make sure to check if the store you are shopping at is on the list of participating shops for your credit card’s instalment payment plan. Most instalment payment plans are only limited to participating merchants.
See also: How to take advantage of instalment payment plans
For Smaller Monthly Repayments: Opt for a Personal Loan
A third option to help when making a large purchase is to apply for a Personal Loan. A personal loan will offer longer loan periods, meaning you can make smaller repayments each month. This will be useful if you need to make an expensive purchase, but you don’t have the cash flow to keep up with a short repayment period.
With a personal loan, you will be charged interest on the entire duration of your loan. But, the bank will factor the interest charges into your monthly repayments, so you will pay a fixed amount every month.
However, personal loans have lower interest rates than credit cards and balance transfers that have exceeded the interest-free period. This makes them a good alternative for big ticket purchases.
For Last Resort: Cash Advance
If urgency is a factor, a Cash Advance can be an option because it is quicker to disburse for instance, to pay the mechanic for fixing your car. In such a situation, it warrants going to the ATM to take a cash advance.
But remember it is important to have an estimation of your cash flow over the short, medium and long term. With this, you can better manage your repayment plan details including debts service ratio and repayment period.
For example, you need RM5,000 and you plan to pay it off in 3 years. Below is a comparison of how much it would cost if you were to take a personal loan or a cash advance:
Personal Loan
Interest rate 7.5% per annum = RM1,125 total interest over 3 years
Total amount of loan = RM6,125
Cash Advance
Interest rate 18% per annum = RM2,700 total interest over 3 years
5% cash advance fee = RM250
Total amount of loan = RM7,950
As you can see, taking a cash advance can cost about RM1,825 more compared to if you were to take a personal loan. This is why cash advance should be kept as the absolute last resort when you need access to cash.
The next time you plan on borrowing money, or need quick access to cash, consider the factors mentioned above to help you make the best financial decision.
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