Buying products and paying for services anywhere in the world is now within everyone's reach with just one click, thanks to technology and new distribution channels.
Consumer habits have changed and computer security has been reinforced to make consumers more confident when paying online.
e-commerce means stores are now open 24 hours a day, 7 days a week. Buying online is now the order of the day, and credit cards have a key role in this. Without forgetting bricks-and-mortar stores, more and more businesses are offering this payment method to make it easier for their customers to shop when they want and pay conveniently without using cash.
But It is very important to understand what these payment methods are and the interest associated with them, before paying for something with a credit card.
What forms of payment are there for credit cards?
Interest-free payment in full
With this payment model, all your purchases in a month are charged to your account, in a single payment, at the beginning of the following month or in the period defined by the financial institution.
This payment method has one great advantage: you pay for everything you consume the following month, with no interest. And your credit limit becomes automatically available once your payments have been charged to your account, so you can use it for new payments or purchases.
Fixed monthly Instalment payments
This payment method allows you to choose the amount you want to pay in constant monthly instalments, of €30 or €50, for example, although banks usually set minimum amounts. These instalments are charged to your account every month until you finish paying off the balance you have spent. This includes repayment of both capital and interest. The big difference compared to other payment methods is that the debt can continue to increase if you keep using the card, but you still pay the same amount every month.
Payment of a percentage of the debt in instalments
You choose the percentage of the balance drawn on the card that you want to pay each month, although banks usually set a minimum monthly payment. The instalments are charged every month until you have paid off the balance you have used, including repayment of principal and interest.
For example, you could pay only 10% of the balance drawn. Under this system, the instalments reduce as the outstanding balance decreases. But if you continue using your credit, the instalments will increase proportionally.
Payment in instalments over specific periods
Under this payment method, you choose a specific period to repay the money spent. The monthly instalments are calculated by dividing the amount of your purchases, plus interest, by the number of months into which you have decided to divide the payment.
It is very common to spread purchases over 3, 6 or 12 months, for example. As this is deferred payment, the shorter the period, the larger the instalments. And the longer the term, the smaller the instalments, but the more interest you pay.
Spreading one-off purchases
This is an increasingly widespread method of payment in supermarkets, consumer durable shops and large stores. Some banks also offer this service: in Bankinter it is called Compra Smart. This aims to make it easier for customers to pay for one-off purchases.
The customer decides which specific purchases they want to delay or spread, and which they prefer to pay for at the start of the next month. This usually combines some of the characteristics of the payment methods we have already looked at: customers choose if they want to pay a fixed instalment or a percentage of the purchase, and can also choose the period based on this. This is a simple payment method. It means you know in advance when you will finish paying for the specific purchase that you have decided to defer. There are usually other special conditions, such as lower interest rates (even 0%) or no arrangement fees.