Depending on the chosen payment method, revolving payments can affect fees and payment terms. However, the Japanese revolving payment system differs slightly from those in Europe or the US. For example, when using a credit card in Japan, customers are often asked whether they want to repay the amount in a lump sum or use the revolving payment system, a feature unique to Japan.

For businesses in Japan, it’s important to know about revolving payments. Staying informed can lead to increased and stable sales. For business partners looking to expand globally, it’s important to have a proper understanding of revolving payments and how they work in Japan.

We explain the unique Japanese system of revolving payments and payment methods and provide an easy-to-understand explanation of their advantages and disadvantages.

What’s in this article?

• What are revolving payments?
  
• Payment methods for revolving payments
  
• Advantages of revolving payments
  
• Disadvantages of revolving payments
  
• Key points about revolving payments
  
• How to use revolving payments
  
• Frequently asked questions (FAQs) about revolving payments
  
• What to know before using revolving payments
  

What are revolving payments?

Revolving payments are a payment method used by credit cards, banks, and consumer finance companies. With revolving payments, customers pay a monthly amount they choose. Therefore, many customers opt for revolving payments for expensive purchases. Below, we examine this system – including revolving credit card payments – and how it differs from similar payment methods.

How revolving payments in Japan work

With revolving payments, customers pay the amount they set in advance. The monthly payment amount remains more or less the same regardless of the number of purchases or the amount spent. The maximum usable amount (i.e., limit) is set during the initial membership screening and is based on the applicant’s income, credit, and other information. Spending above that limit is not allowed. Monthly processing fees are based on the remaining balance. Payments continue until the balance is paid.

How do revolving and instalment payments differ?

Similar to revolving payments, instalment payments are also made in multiple instalments. For this reason, it might be difficult at first to understand the difference between revolving and instalment payments. However, there are some important distinctions.

Unlike revolving payments, the financial institution determines the number of instalments for instalment payments (e.g., 12 or 18 instalments). From the options the financial institution provides, the customer chooses the number of instalments they prefer. With instalment payments, it is also clear when the customer will complete repayment. Therefore, it is a suitable payment method for customers who want to complete repayment within a certain period of time.

One downside to instalment payments is that there might be times when the monthly payment amount will be sizable. Depending on their circumstances, this could put pressure on a customer’s household finances.

Revolving payments vs. card loans

A card loan is a loan service individuals use to borrow money from a bank or consumer finance company and then repay the amount borrowed, including interest.

The interest rates of bank card loans are often set at 1.5%–15%, while the interest rates of revolving payments are typically set at 15%–18%. Therefore, it is likely to be cheaper to use a bank card loan than to use revolving payments. Although it varies from person to person, the credit limit for card loans also tends to be higher.

Card loans also lack a purchasing feature. For this reason, card loans are not suitable for people who want to use them for day-to-day shopping and are more suitable for people who need to borrow cash.

Payment methods for revolving payments

There are several payment methods for revolving payments in Japan, including fixed amount, fixed rate, and sliding balance. The payment method determines the processing fees, monthly payment amount, repayment period, etc.

Fixed amount method

There are two types of fixed amount methods: fixed principal and fixed principal plus interest. Each method is structured differently.

Fixed principal method

With the fixed principal method, customers set a fixed payment amount each month, but the processing fee is not included. The processing fee changes each month based on the rolling balance.

The fixed amount payment method has a larger proportion of the amount paid to the principal. This makes the total amount repaid less than the fixed amount plus interest payment method, everything else being equal.

Fixed principal plus interest method

With the fixed principal plus interest method, you specify the amount of your monthly payment, including fees. Even if customers make additional purchases, the monthly payment amount remains the same.

In the early stages of repayment, there is a large ratio of fees to principal. This can make it more difficult to reduce the principal amount compared to the fixed principal amount method. This could result in a larger total repayment amount.

Fixed rate method

With the fixed rate method, the payment amount is determined by multiplying a fixed percentage (i.e., fixed rate) by the remaining balance and adding the processing fee. As the outstanding balance decreases, the payment amount also decreases. However, if the fixed rate is low, the decrease in principal will be slower. It will also take longer to complete repayment, even though the monthly payment amount remains low.

Balance sliding method

With the balance sliding method, the monthly payment amount changes in steps according to the payment balance. For example:

• If the payment balance is less than ¥100,000, the payment amount is ¥10,000.
  
• If the payment balance is between ¥100,000–¥200,000, the payment amount is ¥20,000.
  
• If the payment balance is between ¥200,000–¥300,000, the payment amount is ¥30,000, and so on.
  

The interest rate adjustment varies depending on the financial company.

Advantages of revolving payments

Although the disadvantages of revolving payments are easy to see, this payment type can be very convenient for customers depending on the time and situation. Here are the benefits of revolving payments in Japan:

Self-paced payment

A revolving payment plan allows customers to keep track of their income and make payments at their own pace. The amount paid each month is more or less the same, making it easier to manage the household budget.

Unexpected expenses

If a customer suddenly needs to buy an expensive item, they can pay for it in one lump sum. However, if they have other large expenses – such as a mortgage or car loan – they might not want to pay it all at once. To be prepared for unexpected emergency expenses, it is better to include revolving payments as a payment option so customers can live a stable life without stress.

Early and lump-sum repayment

With a revolving payment plan, customers can make the monthly payments they set and pay a little extra in months when they have more money. They can also pay the entire amount in one lump sum when they receive an influx of cash. If they use an early payoff or lump sum payment, they can shorten the repayment period and save on origination fees.

Disadvantages of revolving payments

Let’s take a closer look at some of the disadvantages of using revolving payments:

High processing fees

The processing fee for a revolving payment is not cheap. If the payment period is short, it might not be as much of a concern. However, in cases where a large amount of money is being paid over a long period of time, it is possible the processing fees will be higher than the principal.

Long repayment periods

Customers who always pay by credit card and set their monthly payment to a low amount need to be aware that it will take a long time to complete repayment. Customers might want to review the amount they pay or use an early payoff or lump sum to shorten the repayment period.

Overspending

With revolving credit, the monthly payment is more or less the same regardless of how often customers use the card or how much they spend, so it’s easy to get the impression that it’s a dream payment method. They might end up overspending and realise they’ve reached their limit. To avoid this, customers can keep track of their revolving balances and payment cycles.

Key points about revolving payments

Payment method and processing fee rate

Before selecting a revolving payment plan, customers should review the payment method and the processing fee rate. As mentioned above, the amount of the finance charge varies depending on the payment method. If customers use a revolving payment plan over a long period of time – even if the difference in the finance charge rate is only 1% – the final amount of the finance charge will change significantly. Many financial institutions’ official websites offer simulations for each payment method for customers to check.

Limits

It is not possible to use a credit card for a revolving payment that exceeds the credit limit. To avoid reaching the limit, customers can check their limits in advance.

Repayment amounts

Customers should consider how much they can pay for revolving payments based on their monthly income and expenses. They should set a realistic amount they will be able to pay even with unexpected expenses. On the other hand, setting an amount that is too low will result in a longer repayment period and higher closing fees. Customers should set a monthly payment amount that works for them, taking several factors into consideration.

Statements

The longer customers use their credit cards for revolving payments, the longer the repayment period tends to be. They can check their balances and repayment periods on their statements and manage payments to avoid extending them too long.

How to use revolving payments

Do you know when customers can use the revolving payment option? Depending on the item, they might not be able to use revolving payments. In Japan, customers can usually use revolving payments in the following scenarios:

While shopping

When they check out in a store or select a payment method on an e-commerce site, customers can choose to use revolving payments.

After shopping

Even if they choose a non-revolving payment method in the store or on an e-commerce site, customers can change it to a revolving method later.

Pre-registration

Credit cards can be set up to automatically use a revolving payment plan for all purchases.

Credit card for revolving payments

Customers can choose a credit card that allows them to pay only on a revolving basis.

Frequently asked questions (FAQs) about revolving payments

Here are some answers to common questions about Japan’s revolving payment system:

Is there a trick to paying off revolving credit card debt quickly?

The key to paying off revolving payments quickly is to make the repayment period as short as possible. Specifically, customers can do the following:

• Make an early or advance repayment.
  
• Increase the amount of their monthly repayments.
  
• Make a lump-sum repayment.
  

Is there a way to pay off revolving credit in a lump sum?

How customers repay a revolving payment in a lump sum varies by credit card company. In general, they can repay a revolving payment in a lump sum using the following methods:

• Submit a lump sum on the next payment date.
  
• Make a bank account transfer of the full amount owed.
  
• Deposit the amount owed at an automated teller machine (ATM).
  

What is the interest rate on revolving payments?

The interest rate for revolving payments differs slightly depending on the financial institution, but many offer an effective annual rate of 15%–18%.

What to know before using revolving payments

In this article, we’ve explained the revolving payment system, payment methods, advantages, disadvantages, points to consider, and how to use it. Although revolving payments tend to have a negative reputation – due to their high processing fees and tendency to prolong the repayment period – it can be a very convenient method of payment if customers are knowledgeable about how it works.

Stripe is preparing to enable three different payment methods in the Japanese market: credit card instalment payments, revolving payments, and bonus payments. A preview version of these methods is currently available for testing, so please contact us if you’re interested in testing it for your organisation.