Chase recently announced it will launch two brand-new personal loan options that will be available to its cardholders.
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If you’re planning a big purchase, but don’t have enough cash on hand to pay for it right away, you may soon be able to get a personal loan without an application.
If you’re a Chase cardholder, you may instead be able to secure a personal loan that’s tied directly to your credit card.
Chase announced Feb. 26 it’s getting ready to launch two brand-new personal loan options that will be available exclusively to Chase cardholders.
You can get a loan through Chase’s app, or pay off purchases over time
The first option – which will only be available to select cardholders – is called My Chase Loan and appears to be a hybrid between a traditional personal loan and a cash advance. Similar to a traditional loan, the funds you request will be deposited directly into your checking account. However, you’ll be able to use your unused card limit to secure it.
Chase hasn’t yet offered any specific details, but it claims you’ll be given a “competitive” interest rate (unlike the APR on a cash advance, which can run as high as 27 percent or more). That could be appealing to cardholders who know they’ll need a significant amount of cash, but don’t necessarily want to apply for a brand-new loan.
According to Bloomberg, you’ll also be able to quickly choose your personal loan amount through the Chase mobile app, which is another big perk if you don’t have a lot of time and energy to spend on securing a loan.
The second option, called My Chase Plan, works more like a point-of-sale loan. With this option, you’ll be able to pick certain purchases that you’ve already made and pay them down over time with an installment plan.
That way, you don’t have to apply for a loan ahead of time the way you would with a traditional installment loan and you can count on having the same monthly payment over time. With a credit card, by contrast, your payments can be harder to predict – especially now that federal interest rates (which affect variable rate cards) continue to increase.
It’s similar to the kind of point-of-sale loans that lenders such as Affirm and Bread offer; however, you don’t have to apply ahead of time since you’ll already have your card.
Point-of-sale lenders, by contrast, typically approve each individual purchase when you’re at the cash register or checking out online.
American Express also offers point-of-sale loans through its credit cards
My Chase Plan works similarly to American Express’ “Pay It Plan It” feature, which first launched in 2017.
Marketed as a “no surprises” plan for borrowers who prefer more predictability with their payments, “Pay It Plan It” allows American Express cardholders to select specific purchases over $100 and fold them into an installment plan. Rather than pay interest, cardholders are assigned a fixed monthly fee that stays the same for as long as the loan is open. That way, it’s easier to fold into your budget.
But unlike a personal or point-of-sale loan that you apply for separately, you’ll still earn card rewards for your purchases – even if you decide to pay off your purchased in monthly installments, rather than revolve them. That’s a big plus for cardholders who want to get points for their biggest purchases, but feel more comfortable using an installment loan than a credit card.
So far, American Express is the only major card issuer that offers an installment loan tied directly to people’s credit cards. However, credit expert Brian Riley of Mercator Advisory Group speculates that more card issuers could jump on the personal loan bandwagon in the future now that Chase is getting ready to offer one, too.
“Chase can remold the card business with its installment play,” wrote Riley in a recent column about Chase’s announcement. “Running in competition to Amex will cause other card issuers to address the installment market.”
How does it compare to traditional options?
If more card issuers start offering installment loans in tandem with their credit cards, that could give cardholders significantly more options for paying off a large purchase.
But be sure to do the math before you jump on a new offer. If you can qualify for a new card with an interest-free promotion, you may save significantly more money than you would if you opted for a point-of-sale loan tied to your credit card.
Installment loans are more predictable than a credit card that’s drawing standard interest and may even be cheaper. But you’ll typically have to start paying an APR or a fixed fee right away and won’t have the option to duck payments. (Some point-of-sale loans do offer interest-free financing; American Express doesn’t charge interest on its “Plan It” feature, but does charge fees.)
With an interest-free credit card, by contrast, you’d be able to put off paying interest for up to a year or more – and you may even be able to avoid interest payments altogether.
It’s also worth noting that your installment loan may not even run much longer than the typical interest-free promotional period; so it may not be as valuable a tool for you.
Often, one of the best reasons cardholders choose a personal loan over a credit card is because they need significantly more time – sometimes as long as two years or more – to pay off a really big purchase. However, securing that long of a loan may not be possible with an installment loan tied to your credit card.
For example, American Express tailors its installment terms for “Pay It Plan It” to each cardholder and may cap the amount of time it gives you to pay off your loan at less than a year. If you have excellent credit and can afford to pay off your purchase in that short amount of time, then you’d be better off charging the purchase to a card with a lengthy interest-free promotional period or transferring it to a 0-percent balance transfer card.
That way, you can avoid paying any interest. Most general market cards give you at least 12 to 15 months to take advantage of an interest-free promotion.
See related: Can you really win the balance transfer game?
Installment loans are appealing because they’re easy to use and understand and let you know right away exactly how much you’ll have to pay over time. But depending on your circumstances, they may not always be the best financial option.
Before you make a big purchase, do the math and carefully consider each of your choices. You may find the newest financial products your credit card issuer offers aren’t much better than what was already on the market.