American Express fights back against buy now, pay later firms… by launching its own version

American Express has launched its own version of buy now, pay later called Plan It.

New feature for existing credit card customers allows them to pay off purchases divided into three, six or twelve installments for a fixed monthly fee.

The purchase must be a minimum of £100 or otherwise deposit a certain amount of cash owed on the general credit card.

That set amount can be up to 85 percent of a customer’s monthly statement. For example, if in one month a customer spent £1,000 on their card, they could deposit up to £850 into Plan It.

American Express does not charge interest for using Plan It, but customers are charged a fixed monthly fee for the payment plan.

This fee depends on how much you are paying and for how long.

The Amex Plan It calculator on their website assumes your credit card has a 30 percent interest rate, but you may be charged less or more depending on your card’s APR.

You can see how much you would have to pay back versus how much you borrowed.

The amount customers must pay each month will be included in the minimum amount due on their American Express statements.

For example, if you spread a balance of £100 over 12 months using Plan It, the monthly payments will be £9.40 per month, made up of a monthly plan amount of £8.33 and a fee of £1.07, for a total of £112.80.

If you didn’t have an installment plan, your average monthly card payment would be £9.56.

This comprises a monthly card amount of £8.33 and an average monthly interest of £1.23, for a total of £114.72.

Therefore, the amount a customer can save with Plan It is small compared to simply using a credit card.

Payment plans can be set up from the American Express app or in an American Express customer’s online account.

Once set up, the payment plan is automatically included in each month’s “minimum due” payment..

How does BNPL work?

BNPL is a lending method that allows you to make a purchase using a loan provided by a third party.

It is commonly used when shopping online and popular providers include Klarna, Clearpay and Afterpay.

Last week, BNPL giant Klarna suffered its fifth consecutive annual loss ahead of a possible listing, posting losses of £190 million by 2023, narrower than its £800 million loss in 2022.

A BNPL loan is settled in several equal payments or in one lump sum after a fixed period. Often the loan is interest-free for an initial period.

As with any loan, using BNPL comes with risks. Unlike applying for a personal loan or credit card, BNPL providers often do not carry out a credit check on customers, meaning vulnerable users and those with a bad credit history could still be saddled with debt. elderly.

This is especially true for those without regular income, who may find themselves unable to pay off the loan, exposing them to high interest payments.

What should I keep in mind when using BNPL?

A dangerous habit to be aware of is using BNPL to pay for everyday products, such as your weekly grocery shopping.

This is because regular use of BNPL increases the risk of missing payments and incurring interest.

Generation Z (ages 11 to 26) and millennials (ages 27 to 42) are four times more likely to take on debt to cover rising costs, data from broker Credit Karma shows.

Losing track of how much you owe BNPL providers, or payment due dates, can also be warning signs to reduce your usage.

Ricky Bonham, vice president of American Express, said: ‘We know our cardholders value flexibility, including in how they pay.

‘With Plan It, our credit card customers can now pay at their own pace and continue earning rewards while they pay on everything from a new vacuum cleaner to their next big vacation.

“As a company regulated by the Financial Conduct Authority, we are also delighted to launch a payment plan that offers transparent fees and no hidden charges.”