[Malaysia] Public Bank Credit Card Installment Payments – Review

[Malaysia] Public Bank Credit Card Installment Payments (aka Flexi-Payment Plans) – Review

I’ve gotten some more exposure to Malaysian Financial Products because of Covid. Today’s post is about Public Bank Credit Card Intsallment payment options.

They’re not the only ones offering installment payments in the market. However, the Public Bank options is quite attractive.

First things first, to know whether this is available to you, it’ll be important to know whether your card offers such a feature (click on “More Info” to see the Product Details).

The two Flexi-Payment Plans I’m writing about are:

  1. 1% for 12 months (1% p.a.) with a RM1200 minimum purchase, offered on the Public Bank Quantum Cards
  2. 0.5% for 8 months (equivalent to 0.75% p.a.) with a RM1000 minimum purchase on Visa Cards until 31 Dec 2020

There’s also this, also until 31 Dec 2020, but it’s less attractive than the two options above, so I won’t cover this (basically, it costs too much).

Why It’s Attractive

In summary, because:

  • It’s very cheap (0.5% for 8 months and 1% for 12 months)
  • It’s extremely accessible – because you just need to make the payment on the Credit Card and it’s not limited to specific merchants (as far as I am aware)
  • Flexibility
    • To this point, if you pay your RM1200 transaction off your CC bill immediately on the due date, you can’t reverse it. But you can break it down over 8 or 12 months for 0.5% (RM6) or 1% (RM12). Imagine at some point in the future, you’re a little short on cash. How much would it cost for you to borrow money at that point in time? By using this, you’re “borrowing” it upfront with such plans at a very low, almost unheard of rate

To elaborate…
I am typically not a fan of taking out loans, not necessarily because “I don’t like having debt”, but because the interest rate on loans isn’t usually very attractive, and the overall cost ends up making it not so attractive.

As per the linked post above, banks give out loans to make money. They’re “giving” you money, with the hope that they’ll make more money.

If they lend you RM1000, with a 1% rate for 12 months, you’re paying RM1010 back to them – and that RM10 difference is their “profit”. Of course, you have to factor in “time value of money” as well, but I suppose they’ve determined that this is (somehow) worth it for them. And as a consumer who can genuinely see the value of these products, I am certainly not complaining.

However, the difference with these Flexi-Payment Plans compared to other loans is that the rates are extremely low. 1% for 12 months, or 0.5% for 8 months are both extremely attractive. Furthermore, there are no “one time set up fees” or ongoing management fees (there are other avoidable fees).

Why do Public Bank offer such low rates? I suspect it’s something Public Bank see as a low-revenue, but also low-risk stream of income. I believe it’s also a way to incentivise spending overall, and also to specifically encourage spending on their cards, especially when you consider the minimum transaction amount on these two plans.

I can see it being low-revenue – but as for whether it’s low-risk? I’m not sure. The “game” of loans is quite an interesting one in the banking world, because ultimately, they don’t want you to default on your loan, because then they’ll lose money. However, if you’re frequently late but you still manage to pay eventually, you’re a potentially lucrative customer, albeit somewhat risky. Consider the typically exorbitant late fees and interest fees on a Credit Card.

As per the concepts applied in “Should You Take Out a Loan for a Car?“, the primary reason I think these two plans are attractive is because you can make better use of the money you get to hold onto for longer with very little downside/risk as a result of using these two flexible payment plans.

Come on – even initiating a fixed deposit, which is not a great way to grow your money gets you a better return than not making use of this installment plan – that shows you how “reasonably” priced these installment plans are!

How The Transaction Is Charged

You’ve just bought something on your card for RM1200. You decide to convert it to a flexi-payment plan for 1% for 12 months. That RM1200 will now be charged as follows:

  • 1% of RM1200 = RM12
  • Your first month will be the total divided equally (RM100) plus the 1% = RM112
  • Every subequent month, you will be charged RM100
  • By the end of 12 months, you’ll have paid
    • RM100 * 11; (RM1100) and
    • RM112 * 1; (RM112) for a total of
    • For a total of RM1212

The 1% gets charged in your first month, which is what makes this differ slightly from getting a loan with a 1% p.a. interest rate, which would have the interest charged on fixed intervals (presumably month to month) in addition to your principal repayments. To be clear, being charged upfront is slightly less beneficial to you, the customer, but the overall product is attractive enough such that this is not a deal breaker.

Your alternative would is you don’t take the installment plan, fork out RM1200 but have RM0 debt. Having 0 debt might sound good, but is it better than the alternative? That is the crucial way to make any decision.

Think of the opportunity cost of paying the “extra” RM1100 up front (your outlay for the first month is RM112, leaving RM1100 to be paid over the next 11 months). Could you have done something better with that money? Could you have:

The point I’m trying to make is – there is probably a lot you better with the extra money in your pocket for a bit longer.

What’s Not So Attractive

In summary:

  • If you’re ill-disciplined, and likely to increase your spending, you probably shouldn’t look at these plans with such glossy eyes
  • It costs RM100 to end the installment plans early. This includes voluntarily paying it off early (you’d need to make contact to end it – it’s not as simple as paying off the full amount to your card), and if you need to close your card
    • This is a huge disincentive to end it early, and in all honesty, it’s not that big a con. Why would you want to end it early? It’s not like you’re paying 20% p.a. on this debt! Hopefully you’re not forced to close your card, for whatever reason!
  • There is no online way to activate these plans. It requires a SMS/email/phone call/visit to a branch – which frankly speaking feels a bit prehistoric. This results in waiting time and admin work with setting this up. If this was available via Internet Banking and/or the app, it would reduce waiting time, and make this product available in just a few taps of your fingertips (geez, they should hire me for marketing such an enhancement!)
  • The outstanding debt eats into your remaining Credit Limit
  • The 0.5%/1% charge is charged upfront into your first month installment

Concluding Thoughts

These installment plans are pretty unique for the sole reason that they’re one of the best bank (read: cheapest) offered direct installment plans I’ve seen in my time in Australia, Singapore and Malaysia which can be used on almost any transactions on participating cards. I have heard from some sources that they even have had some 0% installment plans historically, which are obviously even better, but even at 0.5% for 8 months and 1% at 12 months, they’re incredibly reasonably priced, and so cheap that I feel they’re an absolute no brainer for eligible transactions – provided you don’t suddenly start spending more because you think you’ve now got a lot of disposable income!

To be clear, the 0.5% for 8 months offer is the better option, primarily because the 0.5% for 8 months can be extrapolated to a 0.75% per year equivalent (i.e. it’s “cheaper” than the 1% for 12 month option).

Have you got any experience with using these Public Bank Installment Plans? Feel free to share your thoughts!

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