It is when you make efforts almost without realizing it, and later receive rewards one after another.
This article will focus on the clever use of installment plans. Of course, just like water can carry a boat or capsize it, if you unknowingly end up buying a bunch of things that can’t be liquidated or resold, it might be a disaster. On the contrary, if you unknowingly buy a bunch of things that can preserve or increase in value, then you’ve made a profit. So this “unconscious” action must be handled well in order to have ideal results.
When shopping, have you ever encountered a salesperson using “You can pay in installments with a credit card” to encourage you to complete the purchase? Seeing that the monthly payment isn’t high, not only does it lighten your burden, but installment plans also offer gifts and discounts, which may even be more favorable than full payment. Such benefits are hard to resist, and consumers often choose installments without much thought.
When it comes to installment payments, people have different views. Some believe installments are “spending future money.” Whether installment plans are good or bad doesn’t necessarily have a definite answer. But an interesting phenomenon is that when we spend cash, because the concept of banknotes is deeply rooted in our genes, we clearly feel the pain of money disappearing. In contrast, using a credit card only requires a swipe to enjoy the product, and you barely feel any pain—only ease and convenience.
Be cautious of your own capacity
Using credit cards for installment payments may feel easy at first, but over time, you may struggle even with the minimum payment. “Free things are the most expensive”—what’s called interest-free installment plans may actually cost more than those with interest.
So-called “zero-interest installments” are more like catalysts, making products that weren’t very attractive suddenly appear very appealing in the eyes of consumers. It seems like all advantages, and before you know it, you’ve bought a pile of things you don’t actually need.
Therefore, we need to carefully consider our own capacity when choosing installment plans.
However, some installment payments can help us preserve strength and flexibly allocate funds. For example, in property investment, even though Hong Kong’s property market has declined, housing prices are still high. Many investors need mortgage loans to gather enough funds to purchase a property—installment payments are almost a must.
Property purchase in installments maintains cash flow
When investing in overseas properties, prices in some places are relatively low, and Hong Kong investors may have enough capital to pay in full at once.
However, the author still recommends that investors consider installment payments. This way, strength can be preserved, funds remain liquid, and when other worthwhile investment projects appear in the future, there is enough capital to enter the market. At the same time, assets become more flexible.
Although this method requires paying interest, as long as rental income covers the interest, the cash flow remains positive.
Investors don’t need to pay extra interest out of pocket, which is equivalent to enjoying zero-interest treatment. The installment model not only avoids increasing the monthly cash flow burden, but also eliminates the need to pay a large down payment at the beginning of the investment. After the property appreciates in value, investors can refinance and use the funds to pay the remaining property price.
At this point, rental income no longer needs to cover interest payments and goes directly into the investor’s pocket. In other words, the investor only needs to pay 30% to 50% of the property value as the initial payment to own the entire property. This kind of installment model can be considered a smart investment strategy.
Written by: Bonnie Wu, Founder of Capstone 72
Edited by: Yip Lai Man
Published: 2023/11/17 15:54
Last Updated: 2023/11/17 15:54
Related Reading
