In terms of financial planning, using other people’s money to make money can be sensible–especially when the borrowing costs are zero. In the world of fractional reserve banking and fiat money, credit cards and consumer loans are a reality. Being wise as serpents and gentle as doves in such an environment may be prudent.
“Cuotas” on Credit Card Purchases in Chile
One thing that will puzzle Americans who shop in Chile is the cashier’s question about whether they want to pay for their credit card purchase in installments (cuotas, pronounced “quotas”). An American will ask, “Why? Why should I pay for $50 worth of groceries in installments?” They will tend to think that some Chileans are poor and cannot afford even little stuff unless they pay over time.
The fact of the matter is quite different. Chilean credit card companies make deals with merchants that make cuotas a good deal for consumers and the products sold by retailers more attractive. They also offer discounts to credit card users through the cuotas system. For instance, banks will sometimes offer 3, 6 or 12 monthly payments on an item purchased without charging any interest. Thus the prudent buy can make a major purchase using money interest free for up to a year, making the effective cost of the product less on account of the time value of money. And since all purchases are cumulative when the deal is being offered (which is almost always), it makes sense to put all purchases on the cuotas system and make payments but pay no interest, saving the money that would normally be used to pay for the item up front and gaining the interest on that money over the year. If one has a high enough credit limit to buy a car on the credit card, the savings can be substantial. Thus, if one can manage his money well in Chile, and has good self control, utilizing the cuotas system may make sense.