Are ‘buy now, pay later’ credit card deals for you?

With “buy now, pay later” plans booming, some popular credit cards are now offering their own BNPL options. But wait. Isn’t “buy now, pay later” the point of having credit cards in the first place? Yes and no.

If you’ve ever purchased anything on HSN or QVC or used apps like Affirm, Afterpay and Klarna, you’ve likely been offered a “buy now, pay later” plan. Basically, BNPL is a monthly installment plan that lets you receive your merchandise now and pay it off over several months.

Now credit cards and payment networks are getting in on the action. American Express, Chase and Citi already offer “buy now, pay later” options on their cards. And Mastercard recently announced it will be offering the digital service on its global network in early 2022.

“In general, these things can be a positive development,” says Chuck Bell, advocacy programs director for Consumer Reports. “The consumer can definitely benefit from these types of programs.”

How credit card ‘buy now, pay later’ plans work

With American Express, Chase and Citi, the proposition is pretty simple. At checkout or after the purchase, you’re given the option of selecting a “buy now, pay later” plan on the card issuer’s website or through its app.

Often you’ll be offered a choice of several plans, ranging from a few months to several years. Some cards may charge an interest rate, while others charge a monthly fee instead. Terms can vary depending on your card, your credit and the specific plan you choose. The BNPL payment (plus fee or interest) is added to the minimum payment each month for the length of the plan.

Amex Plan It

For American Express card holders who want to use the BNPL option, Plan It, qualifying purchases have to be $100 minimum. The card’s app “will show you exactly what your plan choices are,” says Shikha Narula, vice president of U.S. consumer lending at American Express.

Monthly fees for Amex Plan It vary with the purchase and cardholder but are “always the same or lower than the interest [rate],” says Narula.

My Chase Plan

With My Chase Plan, Chase lets cardholders access their BNPL feature through its website or app. Rather than interest, Chase card holders pay a fixed monthly fee based on their credit worthiness, account and purchase, says Melissa Feldsher, head of lending innovation at Chase.

My Chase Plan is available for most purchases $100 or above, Feldsher says: “It enables you to break up one of those transactions into installments, for three months to 18 months.”

Citi Flex Pay

Citi recently expanded Flex Pay, its BNPL program, to allow Citi card holders to finance eligible Amazon purchases at point of sale, where you can choose from six different payments plans ranging from three to 48 months. These purchases will appear as installments on your monthly card statements, charged at an interest rate about 60% lower than the average APR.

Setting up Citi Flex Pay requires no application, credit inquiries or setup fees.

Mastercard Installments

Mastercard is rolling out its own BNPL program early this year. Mastercard Installments will enable consumers to digitally access BNPL offers, either pre-approved through their lender’s mobile banking app or through instant approval during checkout, says Sangita Bricker, senior vice president of communications for product and engineering.

Pre-approved installments can be stored in digital wallets and used directly on a merchant’s website or in store, wherever Mastercard is accepted, Bricker says.

The rise of ‘buy now, pay later’

The popularity of “buy now, pay later” plans has exploded during the pandemic. Apps like Affirm, Afterpay and Klarna have become household names. Payment volume for BNPL services hit $39 billion in in the U.S. in 2020, according to Mercator Advisory Group, up from $3 billion in 2019. And the group projects it will exceed $100 billion by 2024.

In California, where “buy now, pay later” lending services are licensed, the plans accounted for 91% of all consumer loans in 2020, according to a report from the California Department of Financial Protection and Innovation.

Because many states don’t regulate BNPL lenders, one consumer advocate worries consumers are having to make borrowing decisions without enough information, legal protection or recourse.

“We’re asking that consumers are much more informed,” says Marisabel Torres, California policy director for the nonprofit Center for Responsible Lending. “We’re flooding the market with credit right now and are not keeping track of the outcomes.”

And that might give credit cards the edge in the “buy now, pay later” arena. Credit cards are regulated, and a handful of laws offer consumers protections if aspects of their transactions go awry.

Still, some consumer advocates worry that “buy now, pay later” plans – no matter who’s doing the lending – might be a signal that a consumer is already stretched too thin financially. “For lower-cost items, $2,000 or less, people should consider saving up for the things they need,” says Bell. “’Buy now, pay later’ is a subtle cue that you can afford to take on more debt.”

Upside of using a credit card for BNPL

Credit card plans could also be a better choice for some aspects of your credit score.

Some lending apps will do a hard inquiry on your credit each and every time you opt for a plan. (Others make it a point not to do credit inquiries – so it pays to check.) But with credit card “buy now, pay later” plans, you’re using your existing credit line, so no hard inquiries – a nice benefit since hard inquires can impact your score for two years.

With American Express and Chase, unlike some lending apps, you’re not on the hook for retroactive interest if you don’t pay off the plan on time. But you could get penalized for late or missed payments – which isn’t good for your credit score, credit line, or APR.

With credit cards, your BNPL payments are added to your minimum monthly payment. So you you keep the same number of bills and same due dates. Some apps, by comparison, might require payments every two weeks.

If you’re accumulating rewards, “buy now, pay later” purchases are usually eligible. That’s a sweet perk.

Another big benefit: If you have a problem with a purchase and need a return or refund, you have the protections that come with a credit card purchase. Some consumers using third-party BNPL financing apps have complained to regulators and consumer groups that when they returned merchandise or cancelled their original transactions, they were still required to pay off their “buy now, pay later” plans.

Downside of credit card BNPL plans

With credit cards, your “buy now, pay later” plan is part of your card bill. So if you can’t cover the minimum payment plus the cost of your plan, that’s considered a late or missed payment. Since paying on time comprises 35% of your credit score, that can really hurt. (Likewise, some lending apps also report late or missed payments to credit bureaus.)

Also, what if you want to pay off the plan early? With both American Express and Chase, the only way to do that is to pay your entire card balance. Conversely, if you want to pay extra toward your regular balance, can you do that while you have a “buy now, pay later” plan on your bill?

It’s also important to consider what carrying a balance – or a larger balance – will do to your credit score. About 30% of your credit score looks at credit utilization, or how much of your credit lines you’re actually using. Especially for revolving credit, like credit cards, scoring experts recommend using 30% or less of your credit line. How will adding your purchase to your card bill affect that math?

One danger to consider: the habit of carrying a balance. If using a “buy now, pay later” plan normalizes carrying a balance on your credit cards, then that’s not a smart financial move, says Torres.

But that depends on how you’re using that plastic now, says Angela Littwin, law professor at the University of Texas School of Law, who teaches consumer credit, commercial law and bankruptcy. If you regularly pay off balances in full, she says, that’s still the smart way to go.

But for those who routinely roll balances, “if they have a plan where they’re going to pay off in three months rather than pay the minimum [indefinitely], that’s a better thing,” Littwin says.

Before you proceed

As with anything involving debt, the devil’s in the details. With “buy now, pay later” plans on your credit card, the price and ground rules are key. And those can vary from card to card, or even from plan to plan on the same card.

A few things to examine:

• How do the monthly fees stack up against the interest you’d pay if you simply carried the item for a few months on your card?
• Does the card issuer allow you to pay off the plan early? And if so, exactly how does that process work?
• Can you still put extra money toward your regular card balance while you have a “buy now, pay later” plan on your bill?
• What happens to your card and your credit score if you can’t make a plan payment? What kind of fees or penalties will be imposed?
• And what happens with your plan if you need to cancel the transaction or return the merchandise?

“In general, what we say is you have to study the rules of the specific program you are using and carefully read the fine print,” Bell says.

Alternatives to credit card ‘buy now, pay later’ plans

You can also create your own DIY “buy now, pay later” plan with any credit card that lets you roll a balance.

The nitty-gritty: Calculate how long you want to take to pay off the item, add your card’s APR for carrying the balance over that timeline and divide by the number of months you’ll be paying off the purchase. Then you add that amount to the payment you’d normally make every month. (Here’s a calculator to make it easier.)

While you’ll still pay interest, it’s likely to be in the same ballpark as your card’s APR. (And by all means, do the math to make sure.)

Bottom line

Make no mistake, however you do it, “buy now, pay later” plans are one more way of racking up unsecured debt. And that’s never a smart financial move. When you’re adding this kind of debt, the most important consideration is to make sure you’re not over-extending yourself, says Bell: “If you have a day when you come up short, what happens then?”

While carrying a balance isn’t advisable, however, your credit card’s BNPL program comes with built-in consumer protections other BNPL apps don’t offer. In addition, you’re dealing with a lender you already know, and not shopping for new credit (which can also dent your credit score).