If your loved ones have pricey items or experiences on their Christmas lists, a payment plan can help you spread out the costs. But they may carry high interest rates and usually lack consumer protections offered by credit cards. Read on to find out if a payment plan is right for you this holiday season.
You may be able to avoid shelling out hundreds or thousands of dollars right now and put your holiday shopping on payment plans – potentially with no fees and no interest charges.
“Using a payment plan for holiday spending has some obvious advantages,” says Melinda Opperman, executive vice president at Credit.org, a nonprofit consumer credit counseling service. “You can spread the cost out over time, making it easier to make purchases without getting overextended financially.”
Some of these payment plan options charge no interest and no fees, so they can be a good choice “as long as your budget is healthy enough to take on the debt,” says Jeff Arevalo, a financial wellness expert at GreenPath Financial Wellness, a nonprofit consumer credit counseling service.
Other payment plans can carry steep interest charges or levy hefty late fees. Because the options vary widely, it’s important “you read the fine print before signing up,” Arevalo says.
The payment plans, offered by companies such as Affirm and Afterpay, can be appealing to shoppers whose “credit is not quite up to par,” Arevalo says.
These “are a good option for someone who does not have a credit card or has a secured card,” says Trae Bodge, a smart shopping expert.
As a result, these payment plans have proven to be particularly popular with millennials and other younger shoppers.
See related: Holiday shopping and credit card guide 2019
Payment plans to consider for holiday shopping
Affirm: Loans are split into equal payments and run from three to 12 months, although some offer longer terms. Interest rates range from 0% to 30%.
Afterpay: Purchases are split into four equal payments that are due every two weeks, with the first payment due when you make the purchase. Afterpay charges no interest and only charges fees for late payments.
Amazon: Certain Amazon devices, such as Fire tablets and Amazon Echo, can be purchased using a payment plan. The first payment is due at shipping, with further payments billed to your preferred payment method each month. No interest is charged.
American Express Pay It Plan It: Certain American Express cards offer this feature. Purchases of $100 or more can be split into monthly payments with Plan It, while purchases of less than $100 can pay off right away with Pay It. No interest is charged, but you pay a small monthly fee.
FlexPay: This service is offered by Ticketmaster, working with Klarna. Ticket purchases are split into equal payments, and you are charged interest.
Klarna: Like Afterpay, purchases are split into four equal payments, which are due every two weeks. There is no interest and no fees. Longer term financing options also are available.
Uplift: This service has partnered with United Airlines and Royal Caribbean to offer payment plans on travel. There are no fees, but interest rates range from 7% to 36%.
How it works
The types of flexible payment options that are available can run the gamut. For example, Florida residents can purchase annual passes to Disney World through a monthly installment plan and pay no extra fees and no interest charges.
On the other hand, Ticketmaster provides a FlexPay option to finance concert and other tickets using the site Klarna. Consumers pay interest on those purchases.
With many other retailers, Klarna, as well as the site Afterpay, generally split your purchase into four equal payments and charge no interest or fees if payments are made on time.
Meanwhile, Affirm’s loans typically run from three to 12 months, although some are longer term, and the interest rate ranges from 0% to a steep 30% APR.
And some American Express credit card holders can make use of the Pay It Plan It option, through which larger purchases can be split into fixed monthly payments. Users are charged a small monthly fee but don’t pay interest charges on the purchases.
If travel is in your holiday plans, the payment service Uplift has just announced new agreements with United Airlines and Royal Caribbean Cruises. United passengers can divide payments out for up to 11 months, while Royal Caribbean passengers have up to 24 months to pay.
While there are no monthly fees, Uplift charges interest on its payment plans. Travel Weekly reports the loans’ APRs are between 7% and 36%.
The company already offers extended payment options for Southwest Vacations, American Airlines Vacations and Spirit Airlines.
Companies such as Affirm, Afterpay and Klarna do a soft credit check to make sure you are eligible for the loan, but their inquiry won’t affect your credit score.
Some of the services report your payments to the credit bureaus, so making your payments on time reflects positively on your credit history, Arevalo says.
Why you should consider a payment plan for holiday shopping
Because some of the payment plans don’t charge interest, they can be a better choice than pulling out your credit card to make a purchase if you tend to carry a balance on your credit card, Opperman says.
And because you pay your purchases off on a fixed repayment schedule, it’s easier to know how much you have to pay every month and budget accordingly, she says.
Another big advantage is that a short-term payment plan “is not a new revolving credit account that will persist and grow like a credit card balance. Once you’re done paying off your purchase on installments, it’s over. It’s not a card you’ll continue to swipe at other retailers in the future,” Opperman says.
Why you should steer clear
On the other hand, Bodge cautions that these payment options “are a little bit tricky. If you’re not prepared to pay them off on schedule you’re going to get into trouble.”
And with interest rates as high as 30 percent, “some of these APRs are troubling to me,” she says.
That far outstrips the average credit card interest rate, which is now over 17%.
At the same time, “if you’re not someone who budgets, using payment plans can get you in over your head quickly,” Opperman says. “You’re able to buy fairly expensive items for a relatively small ongoing payment. This can really add up and leave you struggling to make ends meet long after the holidays are over.”
Making purchases using a payment plan also doesn’t receive the same protections credit card purchases do, Opperman says. A credit card may provide protection if your purchase is lost, stolen or damaged, or it may provide extended warranty coverage.
Also, you can dispute a credit card charge if an item doesn’t work properly, but an installment plan doesn’t have that same guarantee, she says.
See related: 9 tips for sticking to a holiday budget
Not sure about payment plans? Save up for the holidays instead
If there is any way possible, the experts advocate saving up in advance for your holiday gift-giving.
“At the end of the day, paying upfront with money you saved for the purchase is going to be safer and cheaper,” Arevalo says.