When California Fitness, Singapore’s once-iconic mega gym, closed all its branches last week after almost 20 years here, hundreds of unfortunate customers lost thousands of dollars from costly prepaid packages. The closure was a shock to many, but not completely surprising, seeing as they closed their high profile Somerset branch some years ago.

Before you sign up for a gym package, here are 4 important things you must know to avoid losing money if the gym folds:

California Fitness Closure What To Consider Before Signing Up For A Gym Package

1. Try to limit spending on prepaid packages

Several customers of California Fitness paid for training packages. Some purchased as many as 50 to 100 sessions in advance. There’s no real reason to do this.

Consider a more familiar business, such a music lessons (typically S$120 per hour). If you asked to purchase 100 sessions in advance for S$12,000, would you do it? Or how about subscribing to a magazine for five years at a time?

If you wouldn’t do it for other services, don’t do it for gyms or spas either. If you must buy a prepaid package, try to keep it to a reasonable size – perhaps a month or two in advance at most. There is no need to buy sessions to last an entire year.

Note that, as far as services go, we would advise you not to prepay at all if possible. It is always safest to pay for services after they are rendered. But if you trust the service provider, or they give you no alternative, then at least limit how much you buy in advance.

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2. Don’t be blinded by fancy brand names

Many Singaporeans who bought California Fitness packages assumed it was a reliable company that wouldn’t leave them in the lurch. What had them convinced? Glitz and glamour, for the most part.

California Fitness had high profile locations in places like Raffles and Bugis. They even had endorsements from Jackie Chan. This gave the impression that they are a big, reputable company, which would fulfill its contract with clients. Time and again, we’ve seen scams that use a nice front office to fool people. Even real Ponzi schemes, such as Sunshine Empire, used a facade of size and reliability.

The biggest lesson from this is to not judge a company by its brand and promises. Don’t assume that a bigger service provider is necessarily more reliable or stable.

California Fitness Closure What To Consider Before Signing Up For A Gym Package (4)3. Avoid paying for your gym package in credit card instalments

Many customers misunderstood how credit card instalment plans work. They were offered interest-free instalments on their package and assumed they would be charged for each separate instalment.

That is incorrect.

Say you sign up for a S$5,000 gym package. The interest-free repayments are around S$417 per month for a year. When you charge this to your card, you are not charged only S$417 – the entire S$5,000 is charged to your card at once. Effectively, the bank pays the full sum for you first, and you later repay them in instalments.

So what does this mean? This means that even if the gym shuts down, you still need to keep making repayments. The entire sum has already been paid by your bank. For the same reason, you cannot “block payments” to the gym – the gym has already been paid in full.

This is why you should restrict the use of credit card instalment plans to physical items like laptops or TVs, not prepaid services. Do note that the full amount charged counts toward your credit ceiling.

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4. You probably won’t be able to recoup your losses 

If a service provider shuts down, it is highly improbable that you will get your money back. Once bankruptcy is declared, the company is systematically liquidated. Major creditors like the landlord, or the company leasing them the gym equipment, are paid long before you.

By the time it’s the customers’ turn, there may not be much money left. You usually cannot recoup the money from the owners either. Without going into corporate law, suffice it to say that the company is considered a separate legal entity from its owners. The owners probably do not have to make good on the company’s losses.

Bear this risk in mind if you must sign up for a prepaid package.

Text: Ryan Ong
Photos: Pixabay

This article first appeared on SingSaver.com.sg, Singapore’s #1 financial comparison platform for credit cards and personal loans.