High-interest plans may seem affordable at first, but they can lead to significant financial strain for consumers.
Fiona* was only 23 years old when she found herself in debt to the tune of $44,000 from a major furniture retailer.
“I had just started working. Landing with this huge debt as I was starting out on my own was just a lot for me,” she admits.
In 2010, Fiona had moved into a new 3-room flat in Hougang with her sister and mother, and the house needed new furniture. She and her mother made a trip to Courts, where they chose the necessary furnishings. The total bill came to $20,000, but with the store’s in-house instalment plan, Fiona ended up paying a whopping $44,000 — more than double her original bill.
Courts’ FlexiPlans, which offer a range of flexible payment options, have interest rates starting at 11.99 percent and can go up as high as 33.99 percent per annum. Though the monthly payments appear attractive, they can add up significantly over time. For example, a $99 blender could end up costing a total of $232.20 ($3.87 per month for 60 months), an amount much higher than its original price.
Despite the high interest rates, the instalment plans appeal to consumers who are in need of urgent furnishings or lack financial literacy. Many customers, like Fiona, sign up for the plans without fully understanding the long-term financial implications.
Fiona’s mother was drawn to the idea of the instalment plan, which didn’t require a credit card or a good credit score. “It was sold to us as something simple, with no complications,” says Fiona. But despite her initial reservations, she felt pressure from her mother, and the agreement was signed without fully reading the terms.
Once they received the furniture, Fiona quickly realized the true cost of the instalment plan. “When I calculated the interest and everything else later, the total amount came up to almost $44,000,” she recalls. Fiona found herself struggling to make payments, and missing a few payments led to calls, letters, and even people knocking at her door. “It was quite scary,” she admits.
Even after paying off the debt, the financial strain lingered. It affected her credit score, making it difficult for her to access affordable insurance, and she had to make sacrifices in other areas of her life, such as her wedding.
Azfar*, another consumer who opted for FlexiPlans in 2009, shares a similar experience. He purchased a super single mattress for $1,999 but ended up paying $4,752 over four years — nearly a 238 percent markup. “At the time, I didn’t expect to pay that much. It was just $99 per month, and it didn’t seem like a big deal,” he says.
For both Fiona and Azfar, the experience highlights the dangers of high-interest instalment plans that can seem affordable at first but become a long-term financial burden. Many consumers, especially those unfamiliar with financial matters, are often lured into signing up for these plans without fully understanding the final price.
Sales representatives often emphasize the low monthly payments, but the full cost of the item, including interest, isn’t always made clear upfront. Although Courts has since created a portal to educate consumers on FlexiPlans, many customers still find themselves blindsided by the total cost.
Financial experts acknowledge that while the interest rates may seem high, they’re in line with the rates for unsecured loans like credit cards. However, the rapid depreciation of furniture means that retailers take on a significant risk, which is reflected in the interest charges.
Despite the steep interest rates, FlexiPlans remain an attractive option for families and individuals with tight budgets. Courts also offers other instalment plans with zero percent interest, but these shorter-term plans come with higher monthly payments, making them less accessible to low-income consumers.
While the lower monthly payments of FlexiPlans are appealing, they can lead to a situation where consumers are paying far more than the item is worth in the long run. As more people turn to these plans, it’s important for consumers to fully understand what they’re signing up for and the potential consequences of missing payments.
Fiona and Azfar now opt for Buy Now, Pay Later (BNPL) services, which often offer 0 percent interest and transparency. However, even BNPL can be risky, especially for younger consumers who may not understand the long-term implications of spreading out payments.
“I would say it’s a trap,” says Fiona. “$15 a month may seem like nothing, but if you buy something else under instalment, it quickly adds up. That’s the risk.”
Ultimately, while instalment plans can offer a solution for immediate purchases, they come with financial risks that can have lasting effects on consumers’ lives. Better transparency, financial education, and caution can help prevent consumers from falling into long-term debt traps.
