Credit card companies take cue from startups to offer flexible payment plans

Spend too much on your summer vacation? Need to replace that sputtering air conditioner?

More credit cards are offering flexible payment plans for customers who want to spread out the cost of expensive items, or unexpected expenses, over several months.

Card companies say the options make it easier for their customers to borrow money and to manage their monthly cash flow.

The new options are also a response to the rise of financial technology startups, like Affirm and Afterpay, which work with online retailers to offer shoppers quick approval of monthly installment loans at the moment of purchase. Amazon also offers some customers no-cost monthly installment options, which it charges to the credit card on file with your account.

A payment plan can offer predictability in monthly budgeting, or help ease a short-term cash crunch. But before you sign up, advisers say, consider whether you are setting yourself up to habitually overspend.

Spreading out payments can make big purchases more manageable, said Douglas Boneparth, a financial planner in New York City who advises young professionals. But, he said, doing so also makes it easier to spend even more money on a credit card.

“They can be a steppingstone into bad habits,” Boneparth said. “I’m not a huge fan of them.”

Others are cautiously supportive of the new options, if the borrower is disciplined.

“They can be a good idea,” said Bill Schretter, a financial planner near Cincinnati. “They help people to manage cash flow.”

He urged consumers to read the details of the offer and to consider whether they really needed to spread out payments. The installment amount is typically added to the card’s minimum monthly payment, so you should be sure you can handle that amount.

“Why are you making this big purchase?” Schretter said. “And what if something goes wrong and you can’t make the payment? What’s Plan B?”

Eligibility for the flexible-payment plans, and the details of your offer, vary with your history of managing credit and paying on time.

American Express introduced a flexible Pay It Plan It program for its consumer credit cards in 2017. The Plan It option allows cardholders to pay off large purchases over several months for a fixed monthly fee, rather than accruing double-digit interest by carrying over the purchase in their card balance.

Typically, customers use the planning option for amounts of around $650, and most often for travel and retail purchases — “think vacation flights or designer handbags,” the company said in an email. (The new program isn’t available on the company’s charge cards, which already offered “pay over time” plans, at a traditional interest rate.)

Users select one or more transactions on their digital statement and are then shown options to pay off the item over time; terms can range from three to 24 months. The fee is disclosed upfront, and the payment is added to the account’s minimum monthly payment. The fee is up to 1.23% of the amount put into an installment plan, according to Amex’s card agreements.

Amex said the cost of the plan fee would always be the “same or better” than the cost of interest accrued for the same charge without a payment plan.

The company said it had seen “strong momentum” for the installment option, driven by millennials, generally people in their early 20s to mid-30s, who are three times more likely than customers in other age groups to use the feature.

Citibank recently began offering flexible payment options to “select” card customers in the United States. Citi’s offering works a bit differently: Cardholders can choose to pay off purchases monthly at a fixed interest rate, or they can take out a “flex loan” against the card’s existing credit line, also at a fixed interest rate. The rate on the flexible plans is not higher than the standard interest rate for purchases on the card, Citi said. The minimum amount to borrow is $500, while the maximum depends on the credit limit on the customer’s card.

In February, JPMorgan Chase announced plans to offer new, flexible options to Chase cardholders. According to a transcript on the bank’s website, the options will include a “fee based” payment plan, designed to allow cardholders to pay off purchases between $500 and $1,300 — such as a television or a refrigerator — in installments, for a monthly fee. Chase also said it planned to offer a loan option, for larger purchases like a kitchen remodel, that would allow cardholders to borrow against unused credit on the card and pay it back in fixed amounts at a “competitive” interest rate.

Chase said the loan option was expected to be available later this year, while the installment option was scheduled for introduction in early 2020.

Here are some questions and answers about flexible card payment options:

Q: Can I earn rewards or cash back on card purchases I pay off over time?
A: That varies by card and by the financing format chosen, so read the fine print. American Express said customers earned rewards points on purchases paid off in installments. Citi said its flex loans weren’t eligible for rewards points or cash back.

Q: Will I need to pass a credit check to obtain a flexible payment option?
A: A selling point of the flexible payment plans and loans in general, according to the card companies, is that a new credit check isn’t required to gain approval to spread out payments or borrow against the card.

Q: Are there other ways to manage my card balance?
A: If you have good credit and you’re able to plan ahead, applying for a credit card with a zero-percent balance transfer offer might make more sense for paying off a big purchase over time, said Sara Rathner, credit card expert at financial website Nerdwallet. Many cards, however, charge fees of 3% to 5% of the amount being transferred, so be sure to consider that cost when comparing options.

It’s also possible to pay off card purchases without waiting for your billing statement to arrive. You can do this with most cards by going online and making a payment. American Express — in a nod to customers who want to avoid “statement shock” at the end of the month — said its Pay It option lets customers use their credit card as if it were a debit card, by paying for purchases via its mobile app as soon as they post to the account.

©2019 New York Times News Service