Interest-free instalment plans: how they work, what to check and what happens if you miss a payment

What are interest-free instalments?

They're purchases you pay off in equal monthly parts without being charged interest, as long as you meet the conditions. In Mexico they're called meses sin intereses: Condusef explains they let you buy with a credit card at the same price as paying cash, usually over 6, 12 or 18 months and even up to 48. In Brazil they're called parcelado sem juros, and elsewhere you'll see interest-free instalments or 0% plans.

Not every instalment purchase is interest-free. São Paulo's consumer agency, Procon-SP, distinguishes between a purchase split by the store with no interest and one financed by the card issuer, which charges interest. And Condusef reminds you that interest-free months are not the same as a fixed-payment loan, where you do pay interest.

In the United States, read the offer carefully. With deferred interest, worded like “no interest if paid in full in 12 months”, the CFPB explains that if you don't finish paying on time, you can end up owing interest back to the purchase date. And buy now, pay later usually splits the price into four interest-free payments every two weeks, although most plans charge late fees.

Sources for this part:CONDUSEF (México), Fundação Procon-SP (Brasil), Consumer Financial Protection Bureau (Estados Unidos), Consumer Financial Protection Bureau (Estados Unidos)

Interest-free instalments or the cash price? Compare the total

“Interest-free” doesn't guarantee the best price. Condusef recommends comparing prices across stores to find out whether you'd really pay the same in instalments as in cash, and reminds you that some stores offer deals or discounts for paying cash.

In Brazil, Law 13,455 of 2017 allows sellers to charge different prices depending on the payment term or method, and requires them to display any discounts they offer. And Article 52 of the Consumer Protection Code requires anyone selling on credit to tell you in advance the price, the interest, the number and frequency of instalments and the total amount to pay, with and without financing.

An example with round numbers: a TV costs 1,200 and is offered in 12 interest-free instalments of 100. If the store gives a 10% discount for paying cash, you pay 1,080 up front. In instalments you pay 1,200: 120 more. Interest-free doesn't mean it costs nothing extra.

Sources for this part:CONDUSEF (México), Presidência da República, Planalto (Brasil), Presidência da República, Planalto (Brasil)

What happens if I miss an instalment?

In Mexico, Condusef warns that if you miss one of the monthly payments, the bank or store will charge you interest. The standard credit card statement puts it this way: if you don't pay the monthly instalment of your instalment purchases on top of the minimum payment, that instalment becomes part of the balance that accrues regular interest in the next cycle.

In the United States, with a deferred interest plan, the CFPB explains that you'll be charged interest if you haven't paid off the balance by the end of the promotion or if you're more than 60 days late on a minimum payment. And with buy now, pay later, many plans don't charge interest, but most do charge late fees for missed payments.

In Brazil, your instalments are part of your credit card bill. If you pay less than the full bill, the rest is financed, usually on revolving credit, which can only last until the next bill's due date under National Monetary Council Resolution 4,549. In any country, if you see you won't make it, talk to your bank before the date.

Sources for this part:CONDUSEF (México), CONDUSEF (México), CONDUSEF (México), Consumer Financial Protection Bureau (Estados Unidos), Consumer Financial Protection Bureau (Estados Unidos), Banco Central do Brasil, Banco Central do Brasil, Banco Central do Brasil

How do instalments use up your credit limit and your next months?

An instalment purchase commits money from the months ahead, and it also commits your credit limit. In Mexico, Condusef explains that every card purchase uses your credit line and you can use it again as you pay, and warns that if you max out your card with instalment purchases, you can only use the credit again as you pay it off. On top of that, each new purchase's monthly charge adds to the ones you already have.

An example with round numbers: you buy a phone for 6,000 in 12 instalments of 500, a bike for 1,800 in 6 instalments of 300 and a mattress for 2,400 in 24 instalments of 100. In months 1 to 6 you pay 900 a month; in months 7 to 12, 600; and in months 13 to 24, 100. If your limit is 15,000 and your issuer holds the full price of each purchase, right after buying you have about 4,800 available, and the rest frees up as you pay.

To catch it in time, check your statement. In Mexico, the payment to avoid interest includes the monthly instalments of your interest-free purchases. In Brazil, Central Bank Resolution 96 requires the bill to show your purchases, including those in instalments, your used and available limit, and the total still to pay on your instalment purchases.

Sources for this part:CONDUSEF (México), CONDUSEF (México), CONDUSEF (México), Banco Central do Brasil

Can I pay off instalments early?

Usually, yes. In Mexico, Condusef explains you can pay off what's left before the term ends, but some banks require you to tell them; otherwise, any extra payment may sit as a credit balance and you'll keep being charged the monthly instalment. In Colombia, the Financial Superintendency notes that Law 1555 of 2012 lets you prepay loans with no penalty.

In Brazil, the Consumer Protection Code guarantees early repayment, in full or in part, with a proportional reduction of interest and other charges. In the United States, with a deferred interest plan, the CFPB suggests asking your card issuer to apply anything above the minimum payment to that purchase; in the last two months of the promotion, the issuer must do so.

Sources for this part:CONDUSEF (México), Superintendencia Financiera de Colombia, Presidência da República, Planalto (Brasil), Consumer Financial Protection Bureau (Estados Unidos)

Before you say yes: five questions

Is it really interest-free, or is it deferred interest or a plan with interest? What's the cash price, and is there a discount for paying up front? Are there fees, insurance or other charges? Does the new instalment, added to the ones you already have, fit in what you have left each month for the whole term? Will what you're buying outlast the debt? Condusef suggests using interest-free months for durable goods, like appliances or computers, and not for things you buy again every month, like groceries.

And to tell whether it's really worth it, try the life energy method from Your Money or Your Life, by Vicki Robin and Joe Dominguez: divide the price by what you really earn per hour. If you earn 10 an hour, a 1,200 TV costs you 120 hours of work. If you still want it after doing the math, go ahead; and if you can save first and pay cash, you don't tie up the months ahead.

Sources for this part:CONDUSEF (México), Your Money or Your Life

How to log instalment purchases in Oslo

In Oslo, tap “Add an entry”, choose Expense and, under “Paid from”, pick your card or the store credit, which you first add under Debts as “Other debt”. The question “In how many instalments?” appears: choose the number, from two to forty-eight, and Oslo shows you how much each one is, one a month. If you pay in full, leave it at one.

Each instalment counts as spent in its own month and category, not all on the day you buy. In Today, the instalments due before your next payday are already set aside, so “You have” is what's really left; on the day one arrives, Oslo tells you it was already set aside. Inside the purchase you see which instalment you're on and how much is left, with options like “I already paid this purchase” and “My bank changed the term”.

If you pay your card more than that month's amount, Oslo counts the extra as instalments paid early, starting from the last one, on the day you pay; how your bank applies it shows on your statement. And in More, Your Oslo, “Learn with Oslo”, the “Buying in instalments” lesson explains it in a minute. On the free plan you can track up to three debts, and each card or store credit counts as one.