Systems That Appear Interest-Free but Work Behind the Scenes
Although the phrase “0% interest” is frequently used in installment purchases, the installment price is secretly used instead of the cash price. Many stores set the installment sales price high and then claim that they do not charge interest, thereby concealing the actual cost.
In some installment campaigns, even though the total cost may not be visible as the payment period extends, the seller's profitability increases; this goes unnoticed because the costs are divided into small monthly amounts. In installment purchases promising “0% interest,” the card-issuing companies actually cover these costs by charging a commission to the seller, who then passes this cost on to the prices.
The Impact of Installment Shopping on Debt Psychology
The human brain does not feel pain when spending in installments because it perceives the payments as “small pieces”; therefore, more spending occurs. Someone who pays in installments does not see the total debt on their credit card statement, so the feeling of debt is delayed and control is lost.
Small monthly payments become frequent with the perception that “it's only this much,” and when several products are purchased on installments at the same time, the total burden is generally noticed late. This system is referred to as “psychological decoupling” in some studies, meaning the severing of the link between spending and payment.
Methods of Masking the Real Interest Cost
In some countries, card companies apply indirect interest by adding extra fees such as “management fees” or “credit processing fees” to installment payment plans. In so-called “0% interest” purchases, if payment is delayed, the system automatically applies retroactive interest; consumers usually notice this too late.
In installment purchases, the first month's payment is sometimes not collected, but the cost of this delay is secretly added to subsequent installments. Some campaigns appear to charge a commission from the seller rather than the consumer, but the actual cost is automatically added to the product price.
Increasing Risk as the Payment Plan Lengthens
If a 12-month installment purchase breaks down or is no longer needed in the third month, payments continue for the remaining 9 months. Many people tend to replace or buy new products purchased on long-term installments before the installment period expires, which creates cumulative debt.
If the card limit is reached during the installment period, the individual begins to look for new sources of debt for other urgent expenses. In some countries, long-term installment loans appear as a fixed burden on credit scores, which can affect credit ratings.
Factors Affecting Card Companies' Profitability
Major credit card providers have multiplied their annual profits with the increase in installment payments. With installment purchases, the individual owes money to both the seller and the bank at the same time, creating a dual profit model.
Even if the purchased product is returned, in some cases the first installment and transaction fees are not refunded. Banks combine installment purchases with a “minimum payment amount” to spread the repayment of the debt over several years.
Commercial Use of Legal Clarity
In some countries, regulations on installment purchases only require the disclosure of the “annual interest rate”; however, sellers can circumvent this by incorporating it into the product price. In legally interest-free purchases, hidden costs can be applied through items such as “file fees” or “insurance costs.”
In some regions, installment purchases are treated like a type of credit but are not classified as such, meaning they are not covered by consumer protection laws. In some countries, the right to cancel installment purchases made online is limited; the return process is slow, and consumers find it difficult to withdraw from the purchase.
Cross-Country Differences in Application
In the US, most installment purchases are actually a form of credit, and while the APR (Annual Percentage Rate) may appear as 0%, a single late payment can convert the entire debt into interest. In the UK, installment sales are referred to as “buy now pay later” (BNPL), but most of these are not subject to FCA (Financial Conduct Authority) regulation.
In Canada, installment payment systems offered by many e-commerce sites are managed by third-party fintech companies, which have the authority to collect credit scores. In Europe, some countries have limited the maximum total fees that can be applied to installment purchases; however, this regulation is circumvented through promotions.
Behavioral Manipulation by Digital Platforms
Online shopping platforms display the installment option in large font directly below the product, while presenting the total cost in small, faint text. When the installment payment option is selected, the payment terms are often added as a subparagraph rather than on a separate page when users click the “confirm” button, making them difficult to notice.
Some apps use phrases like “pay in 4 months” to create a sense of psychological comfort; however, the system is not interest-free and is actually a trap that allows for delays. The vast majority of users see installment options at the end of the shopping process rather than at the beginning; this strategy does not influence the spending decision but directs the payment method. Some applications use behavioral guidance by presenting installment payment suggestions based on the person's past spending as a “personal finance plan.”
Systems Built on Consumer Unconsciousness
Most consumers who make installment purchases focus on the monthly payment rather than the total amount of debt they are accumulating. Research shows that over 60% of those who purchase the same product on installments believe they are spending less compared to paying in full.
People generally do not think of the product they purchased on installments as an “unfinished debt” until they have paid it off, which does not affect their new purchasing decisions. Even when the product purchased on installments breaks or loses its functionality, the person experiences “a debt that continues even though it is finished” because the payment process continues. Credit card companies recognize this lack of awareness and offer a “pay the minimum amount” option as the default on their payment screens, allowing users to carry interest-bearing debt at their own discretion.
The Link Between Installment Payments and Reputation Management
While installment payments appear as “regular payments” on credit reports, they can be classified as risky debt behavior in the long term. Users with a high propensity for installment shopping may be deemed risky in new credit applications due to “high debt traffic,” even if their credit score appears high. Some financial institutions evaluate installment payment behavior as a “stable but tight” consumer model, which can be an obstacle for large items such as mortgages or car loans.
Errors in the Repayment Process and Returns That Turn Into Traps
When a product purchased on installments is returned, some banks do not refund the money immediately but instead return it to the card after a few weeks, during which interest continues to accrue. In some return processes, the seller, who collaborates with the card company, only refunds the product's price but does not return the initial transaction fee (processing fee, insurance). Sellers often make partial refunds in installment payment transactions, even if the product is returned, by stating that “credit services were used.”