A MAJOR credit card provider has launched a buy now, pay later-style option for cardholders.
American Express will let customers pay in instalments of three, six or 12 months.
Usually with a credit card, you pay off the full balance at the end of each month at no extra cost, or make at least the minimum repayment and pay interest.
With Plan It, cardholders will be able to spread the cost of their purchases over a longer period.
Instead of paying interest, there is a monthly fee – how much that depends on the balance and how long you spread the cost.
For example, repaying £1,000 over six months will come with a £10.70 monthly fee – so £64.20 overall.
Borrowing the same amount with an interest rate of 30% will cost £95.79 a month over the same period of time.
Why you need to be careful with credit.
With credit cards, you should ALWAYS pay off your balance each month unless you have a 0% interest rate offer and are spreading the payments over a number of months.
If you don’t then you could be paying up to 18% APR.
If you had a balance of £1,000 then it would take you 18 years and three months to pay off the balance and you’d pay £1,204 extra in interest.
You should never borrow more than you can afford to pay back.
The scheme could be compared to buy now, pay later (BNPL) schemes which allow account holders to buy something and pay for it in full at a later date.
In general, if you pay for the goods you bought within the delay period – which is usually between 30 days and three months – you won’t pay any interest.
There are also no fees except the monthly fee or unless you miss a payment, which could also affect your credit score.
Amex said the new option will give customers more flexibility and is available on all cards.
It can be used for account balances of over £100 and up to 85% of your total card limit.
Ricky Bonham, vice president, of American Express, said: “We know our Cardmembers value flexibility including in how they pay.”
“With Plan It, our credit card customers can now pay at their own pace, continuing to earn rewards as they do so on everything from a new vacuum cleaner to their next big holiday.
He added that the instalment plan offers “transparent fees and no hidden charge”.
American Express personal or business card users with any of the following can use Plan It:
If you have a credit card that offers rewards, like Avios points, you’ll still get them as usual.
You must be up to date with payments to be able to use the new feature.
There is no credit check required for starting an instalment plan, as you already have a credit agreement with Amex for the credit card.
The option to move purchases to Plan It is available via your online account or the American Express app.
You can then choose a duration – three, six or 12 months.
The monthly instalment fee will be disclosed to you when choosing the plan.
For example, if you put £106 on an instalment plan over six months, your monthly payments would be £18.80.
That’s instead of £19 without a plan and paying interest of 30% over the same period instead.
Your monthly fee would be £1.13 cheaper than your average monthly interest without a plan at £1.33.
If you put £1,000 on a plan over three months, your monthly instalments would be £344.03 a month, cheaper than the average monthly card repayment of £346.96.
Your monthly fee would be £10.70 cheaper than your average monthly interest without a plan at £13.61.
This is based on an interest rate of 30%, and the rate you get may be more or less.
The American Express website has a handy ‘Plan It’ calculator to help borrowers decide which option may be more cost-effective
You need to know that your monthly instalment amount and fee will be included as part of the required minimum due, meaning your monthly minimum payment will increase compared to interest payments.
The increase could be significant if it’s a large transaction over a shorter term.
For example, if you borrowed £300, your monthly payments would be significantly higher on a three-month instalment plan than a 12-monthly instalment plan.
So you shouldn’t start an instalment plan unless you are sure you can make all monthly payments in full and on time.
Failing to make your minimum payment could lead to you getting a late payment fee and your credit rating may be affected.
We’ve asked how much a late payment fee is and will update this story when we hear back.
Cash withdrawals can’t be moved to an instalment plan. Withdrawing cash on a credit card should generally be avoided anyway as the interest rates can be far higher than for purchases.
Your monthly fee will be set based on your balance before you withdraw any cash and your monthly payments will stay the same regardless of how much cash you have taken out.
Andrew Hagger at Moneycomms.co.uk, explained: “The instalment plan gives cardholders the flexibility to separate and manage a larger purchase away from their normal card statement.
“However, there doesn’t seem to be much difference in pricing of fees against interest, so convenience is the main benefit with this deal, rather than it being a money-saving offer.”
But, Rachel Springall, Finance Expert at Moneyfactscompare.co.uk said:
“Borrowers who want to set up a clear set repayment plan on their credit card will find the new instalment plan feature useful, and it charges a fee instead of interest.
“It can be far too easy to set a typical credit card payment to the minimum, but this just takes longer to clear debts, especially when interest is being applied.
You could pay back your balance quicker if you set your instalment plan over fewer months, compared to paying the balance and interest over a longer period of time.
“Borrowers worried about not sticking to repayments and being charged interest may then find the instalment plan a cheaper alternative depending on their individual circumstances,” she added.
It’s also worth remembering that you can avoid any costs altogether by paying off the balance in full each month.
If you miss a monthly payment for an instalment plan, the unpaid amount will be requested on your next statement as part of the payment due that month.
If you do not pay your monthly minimum payment, in full, for two consecutive statements, any instalment plan on the account will be cancelled.
You will also be charged a late fee a late payment fee, and it will be marked as a missed payment on your account
You can’t overpay an instalment plan, whereas with typical monthly repayments you can vary the amount each month, as long as you pay the minimum.
If you wish to repay your instalment plan faster by making a payment larger than the monthly instalment plan amount, you must cancel the instalment plan and make the payment to your main account balance.
THERE are several groups which can help you with your problem debts for free.
You can also find information about Debt Management Plans )DMP_ and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations – don’t be tempted to use a claims management firm.
They say they can write-off lots of your debt in return for a large upfront fee.
But there are other options where you don’t need to pay.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
You can also join our new Sun Money Facebook group to share stories and tips and engage with the consumer team and other group members.
