Are credit card payment plans worth it? | Credit card

Buy now, pay later services present an attractive offer: get something right away without having to pay any money and spread the cost of the item over several fixed payments. Also known as point-of-sale loans, BNPL’s popularity has skyrocketed as e-commerce spending has increased during the pandemic.

In the past two years, three major credit card companies have begun offering their cardholders similar buy-now, pay-later installment plans. Here’s an overview of how American Express Plan It, My Chase Plan, and Citi Flex Plan work, how they compare to traditional BNPL plans, and when it may (or may not) be a good decision to use credit card payment plans. credit.

What are credit card payment plans?

BNPL transaction volumes have exploded in recent years, from $33 billion in 2019 to $120 billion in 2021, according to GlobalData. With the popularity and growth of BNPL offerings, some credit issuers have created their own versions.

“It’s a competitive move to try and capture a little bit more market share at point of sale,” says Mike Sullivan, personal finance consultant for Take Charge America, a credit counseling and debt management agency. non-profit debt.

Credit card payment plans follow the general BNPL concept: they allow you to make a large purchase and then spread the payments over a few months (or even years). While that sounds like a lot, each of the credit issuers charges a fee or interest, which means there’s a cost to using these plans.

These packages have several advantages: they do not require a credit check and you can establish one after making the purchase, unlike traditional BNPL services, which take place at the point of sale. With fixed payments and an end date in sight, they can help you pay off a large purchase rather than defer it to your credit card balance for longer periods of time.

How does AmEx Plan It work?

American Express Plan It, which started in 2017 and has been the issuer’s longest-running installment plan, lets you spread out payments for purchases of $100 or more. A flat fee is applied each month, which will be based on the size of the purchase and your account history. When setting up your plan online, you can combine up to 10 qualifying purchases into a “multi-transaction plan”. However, if you use the app, you can only use Plan It for one purchase at a time.

AmEx It plan terms range from three to 24 months, and the fixed payment amount is added to each statement’s minimum payment.

What is my prosecution plan?

My Chase Plan is Chase’s BNPL plan for cardholders, which launched in 2020. Whenever you make a qualifying purchase over $100, you can see in your online account or app if you have the possibility to pay using the plan. Plan options will depend on your account history and size of purchase, but plan terms typically range from three to 18 months.

After choosing a plan duration, you will pay the same fixed amount each month, which will be added to the minimum amount due on your card. Although you don’t pay interest, a fixed My Chase Plan fee is charged each month of your plan. The cost of the plan is added to your minimum payment amount each month.

How to use the Citi Flex plan

The Citi Flex Plan, which started in 2019, is for Citi cardholders and can be used for qualifying purchases of $75 or more. You can choose to pay with the Flex Plan through your online account; qualifying purchases will be marked with the Flex Pay icon. You will usually be offered several payment options. If you’re an Amazon buyer, you can also choose to use Citi Flex Pay at checkout.

Of the three credit plans, Citi has the longest term available, up to four years (depending on purchase and customer history). It also differs in that it charges a fixed APR on the purchase rather than a fee. The main benefit of the plan is not to save money, but to give you the discipline to repay the purchase by a specific date.

American Express Plan it My hunting plan Citi Flex Plan
Term options 3 to 24 months 3 to 18 months Up to 48 months
Cost Monthly fee Monthly fee Fixed APR
unique feature Can add up to 10 qualifying transactions to a plan Qualifying purchases start at $75 (less than others) Can be applied during Amazon checkout

Comparison of Credit Card Payment Plans with Buy Now Pay Later Services

Buy now, pay later services like Klarna, Afterpay, PayPal’s “Pay in 4”, Affirm and others are usually offered at the point of sale, unlike credit card payment plans which are activated after purchase . Although BNPLs vary, the overall concept is the same: you spread your payments over time.

In the most common BNPL plans, consumers pay for their purchases in four instalments. Credit card payment plans, on the other hand, offer multiple payment term options.

With BNPL services, you don’t need to be a credit card user or go through a credit application to use them. Most also do not charge an additional fee.

One thing that BNPL and credit card payment plans have in common, however, is the potential to encourage impulse purchases, Sullivan says. “When looking at this particular garment, saying, ‘It’s only $40 a month’ instead of saying, ‘It’s $160’ is a dangerous trend for many consumers.”

The Consumer Financial Protection Bureau also warns that failure to repay a BNPL loan or credit card payment plan could be reported to a debt collector and/or the credit bureaus, and negatively impact your credit.

BNPL Credit card payment plan
Term options Usually four installments Longer repayment term options
Cost Usually no fees or APR Fees or APR applied
When available Plan offered at the point of sale Plan applied after purchase

The right time to use a credit card payment plan

Ideally, you’ll use these offers sparingly, for example if you need to make an emergency purchase but are short on cash. The best time to use a credit card payment plan is if you have high interest cards and know you can be diligent about making plan payments. This approach will actually help you come out on top because your debt has an end date. “But you have to be a checklist type of person – someone who regularly monitors the deadlines in your life,” said Howard Dvorkin, CPA and chairman of Debt.com.

When evaluating your options, Sullivan recommends crunching the numbers to see how much more you’ll pay for a purchase using a credit installment plan once the fees (or APR in Citi’s case) are added. . If it matters, opting for a no-fee BNPL or exploring other alternatives might make more sense.

Another tip: it’s always a good idea to check if your issuer offers promotions. For example, AmEx is known to offer eligible cardholders a free period to use Plan It.

Finally, make sure your budget can handle the additional monthly obligation of a credit card payment plan. “Payment terms seem generous, until you inevitably miss one,” says Dvorkin, noting that all charge late fees and can potentially impact your overall credit health.