Credit card companies are offering financing options

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Some credit card companies are now offering options like payment plans and flexible loans to customers who want to pay off larger purchases over time, according to the New York Times. These can take different forms. Here are some examples that the Times highlighted.

  • Citi offers payment plans for big purchases as well as flexible loans that allow some cardholders to borrow against the unused credit on their card. Both options are at a fixed rate, though for the flex loans, the interest rate is capped at the card’s purchase interest rate.
  • Chase has a new payment plan called My Chase Plan, which allows cardholders to pay off past purchases of $500 or more over a longer period of time for a monthly fee. The lender also has a flex-loan option it calls My Chase Loan. It allows some users to borrow against the unused portion of their credit line at an interest rate that’s competitive with the regular purchase APR on the account.
  • American Express offers a payment plan of its own. Pay It Plan It allows cardholders to finance purchases and repay over a series monthly payments for a flat monthly fee.

Though these new offerings could help if you’re looking for funds quickly, you’ll want to know the terms of the offer and the extra fees you might have to pay before committing.

Why are card companies offering payment options?

The credit card companies offering these new options say that their payment plans and credit loans can help their customers better manage their access to cash and more easily borrow money when needed, according to the New York Times.

Why should you be wary of using these products?

If you need an emergency car repair or have to pay off an unexpected medical bill, it could be tough to work the extra expense into your budget, especially if you don’t have an emergency fund.

But even though it may be tempting to sign up for a payment plan or flexible loan using a credit card you already have, think about whether one of these new options is really the best way to go in your situation. For example, you might want to consider something like a personal loan instead, because it may have a more-competitive interest rate.

If you do opt for any of the new financing options offered by credit cards, there are some potential pitfalls to consider.

  • Higher interest rates — Credit cards often have higher interest rates than other forms of credit, so a credit card payment plan or loan might not end up being especially cost-effective. Plus, if you miss a payment, your interest rate may rise higher still.
  • Potential credit impact — Taking out a loan on the unused portion of your card’s credit line will increase your credit utilization rate (the percentage of your credit that you’re currently using). And if your rate is already high, using more of your credit line could have a negative effect on your credit. That’s because this rate can be a big factor in the calculation of your credit scores.