Major credit card provider launches ‘buy now, pay later’ option – is this good?

A major credit card provider has launched a ‘buy now, pay later’ option for cardholders.

American Express lets customers pay in installments of three, six or twelve months.

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With a credit card, you usually pay the full balance at the end of each month without any additional fees, or pay at least the minimum principal and pay interest.

Plan It allows cardholders to spread the costs of their purchases over a longer period of time.

Instead of paying interest, you pay a monthly amount. How much depends on the balance and how long you spread the costs.

For example, if you pay back €1,000 over six months, you will pay €10.70 per month, for a total of €64.20.

Borrowing the same amount with an interest rate of 30% costs € 95.79 per month over the same period.

The scheme can be compared to the ‘buy now, pay later’ (BNPL) scheme, where account holders can buy something and pay for it in full at a later date.

Generally, you will not pay interest if you pay for the goods you purchased within the delay period (usually between 30 days and three months).

There are also no fees, other than the monthly fee or unless you miss a payment, which can 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 over £100 and up to 85% of your total card limit.

Ricky Bonham, vice president of American Express, said: “We know our cardholders value flexibility, including the way they pay.”

“With Plan It, our credit card customers can now pay at their own pace, continuing to earn rewards on everything from a new vacuum to their next big vacation.

He added that the repayment plan offers “transparent costs and no hidden fees.”

How does Amex Plan It work?

American Express personal or business card users with any of the following can use Plan It:

• Platinum Cashback Everyday Credit Card
• Platinum Cashback Credit Card
• American Express Preferred Rewards Gold Credit Card
• American Express credit card from British Airways
• British Airways American Express Premium Plus Card
• The Platinum Card (credit card)
• Nectar credit card
• Marriott Bonvoy American Express Card
• Vitality American Express Credit Card
• British Airways American Express accelerating business card

If you have a credit card that offers rewards such as Avios points, you will still receive them as usual.

You must be current with payments to use the new feature.

No credit check is required to start a repayment plan as you already have a credit agreement with Amex for the credit card.

The ability to move purchases to Plan It is available through your online account or the American Express app.

You can then choose a duration: three, six or twelve months.

The monthly installment amount will be disclosed to you when choosing the plan.

For example, if you put down $106 in installments over a six-month period, your monthly payments will be $18.80.

That’s down from £19 without a contract and instead gets 30% interest over the same period.

Your monthly costs would be £1.13 cheaper than your average monthly interest without a contract of £1.33.

If you put €1,000 into a plan over three months, your monthly payments will be €344.03 per month, which is cheaper than the average monthly card repayment of €346.96.

Your monthly costs would be €10.70 cheaper than your average monthly interest without a subscription of €13.61.

This assumes an interest rate of 30%, whereby the rate you receive 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

How can you find out if Plan It is right for you?

You should know that your monthly installment and fees will be included as part of the minimum payment requirement, meaning your monthly minimum payment will increase compared to the interest payments.

The increase can be significant if it is a large transaction over a shorter period of time.

For example, if you borrowed £300, your monthly payments on a three-month repayment plan will be significantly higher than on a twelve-month repayment plan.

So you should not start a repayment plan unless you are sure you can pay all monthly payments in full and on time.

Failure to make your minimum payment could result in you incurring a late payment penalty, which could affect your credit score.

We’ve asked how much the late fee will be and will update this story if we hear back.

Cash withdrawals cannot be converted to a payment plan. Withdrawing cash with a credit card should generally be avoided anyway as interest rates can be much higher than on purchases.

Your monthly fees are determined based on your balance before you withdraw cash, and your monthly payments remain the same regardless of how much cash you withdraw.

Andrew Hagger from Moneycomms.co.uk explains: “The installment plan gives cardholders the flexibility to separate and manage a larger purchase outside of their normal card statement.

“However, there doesn’t appear to be much difference in the pricing of fees and interest, so convenience is the main benefit of this deal, rather than it being a money-saving offer.”

But Rachel Springall, financial expert at MoneyfactsCompare.nl said:

“Borrowers who want to set a clear repayment plan on their credit card will find the new repayment plan feature useful, and they will be charged a fee instead of interest.

“It can be way too easy to minimize a typical credit card payment, but it just takes longer to pay off debt, especially if interest is applied.

You can pay off your balance faster if you set your repayment plan for fewer months, compared to paying the balance and interest over a longer period of time.

“Borrowers who are concerned about defaulting on repayments and being charged interest may then find the repayment plan a cheaper alternative, depending on their individual circumstances,” she added.

Also keep in mind that you can avoid all fees by paying off the balance in full each month.

What happens if you miss a monthly payment?

If you miss a monthly payment on a payment plan, the unpaid amount will appear on your next statement as part of the payment due that month.

Failure to pay the monthly minimum payment in full for two consecutive statements will void any payment plan on the account.

You will also be charged a late payment fee and will be marked on your account as a missed payment

With a repayment plan you can’t overpay, while with regular monthly repayments you can vary the amount each month as long as you pay the minimum.

If you would like to pay off your repayment plan faster by making a payment that is greater than the monthly repayment plan amount, you must cancel the repayment plan and make the payment on your main account balance.

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