One financial product that’s proliferated the market in the past few years is the “pay-over-time” installment plan. Customers who need to make a large purchase are offered the choice to make payment plans with a fixed monthly fee, instead of carrying a balance forward and being subject to a card’s interest rate.
While we always recommend paying off your credit card balance in full each month to avoid being charged interest or fees, there are some situations in which you’re faced with a leftover balance at the end of the month.
Today, we’re going to look at the offering from American Express Canada in this category, known as Plan It, to see how it works and how it compares to carrying a balance on your credit card.
What Is American Express Plan It?
One of the oldest (but true) stereotypes about credit cards is that their high interest rates can lead to financial trouble. With annual percentage rates (APRs) averaging 20.99% for most credit cards in Canada, interest charges can certainly cause distress to those who spend significantly more than they can afford to repay.
This is where “pay-over-time” plans, or installment plans, enter the picture as an alternative to carrying a balance. These plans exist to simplify payments towards large purchases over time with fixed fees, instead of letting consumers deal with the byzantine complexities of credit card interest.
In Canada, a variety of banks have stepped up to the plate by offering consumers the choice to use “pay-over-time” products, such as CIBC Pace It, Scotiabank SelectPay, and American Express Plan It, amongst others.
These products charge a set monthly installment fee, a reduced APR, or some combination of the two to those who wish to split payments up for big purchases over time, instead of carrying a balance forward each month.
Amex Plan It is one of the simpler pay-over-time products to understand, because it imposes fixed monthly installment fees, instead of a more complicated APR calculation.
Currently, Plan It is being offered on the following American Express personal and small business cards:
At the moment, Plan It isn’t available to cardholders in Quebec, Nova Scotia, Nunavut, or Prince Edward Island.
How Does American Express Plan It Work?
To use Amex Plan It, you can either make a qualifying purchase of at least $100 and then create a plan, or you can opt to pay down a portion of your most recent monthly statement balance using Plan It.
Setting up a Plan It installment plan involves three steps.
On your Plan It landing page, which can be accessed on your American Express account, you’ll see a list of eligible purchases for which you can create a plan. On this screen, you can choose one or more purchases, and the sum of the principal amounts will be displayed.
On the next screen, you’ll see three options for Plan It installment plans. For each, you’ll see the the amount of principal you’ll pay each month, the monthly fee, and the total amount you’d pay each month, which is the sum of the principal and the monthly fee.
After selecting one of these, you’ll then be taken to a summary page, which goes over in detail what you’re signing up for. The terms of your installment plan, including the monthly fee calculation for your payments and the total amount you’ll pay over the course of the plan, are displayed alongside the program’s terms and conditions.
If you agree to everything, click on “Submit”, and your Plan It installment plan will be set up shortly.
Once set up, the total amount of your plan will be reduced from your available credit, the charge(s) for which you’ve set up Plan It installment plans won’t accrue interest, and your monthly minimum payments will include the amount you’ve agreed to pay back over time (principal + monthly fee).
You’ll need to make the minimum payment each month, otherwise your installment plan will be cancelled, and the charges will accrue interest as per usual. If you have pre-authorized debit set up, the minimum payment, which includes the principal + monthly fee from Plan It, will be automatically deducted from your account.
Is American Express Plan It a Good Deal?
Before we take a look at whether or not Plan It is a good deal, it’s worth reiterating that as much as possible, it’s best to pay off your credit card balance in full each month. This way, you avoid paying any interest charges that effectively eat away at the value of any points or rewards you earn from your card.
However, if you find yourself with some unexpected expenses that you won’t be able to cover all at once, then it’s worth considering the options at your disposal to bridge the gap until you can pay off the balance.
If you’re considering using Plan It, you should understand that it’ll come at a cost, which is clearly displayed during the setup process. However, the rate you’re charged will vary, so it’s important to check at which rate the monthly fee is calculated each time, as you’ll get a sense of how the rate compares to the annual interest rate on your credit card.
It’s worth noting that the monthly fee charged may even be a promotional rate of as low as 0%, but is often anywhere from 0.35–0.9% of the principal.
For example, let’s use a purchase worth $1,000 (all figures in CAD), with a monthly fee calculated at 0.9% of the principal.
You’re presented with three options, and in each instance, the monthly fee is $9, plus the principal amount, split into either three, six, or 12 even parts.
Depending on the plan you choose, you’ll wind up with a different amount of total fees versus if you were to pay it off in full and not accrue any interest or fees:
- Three months: $27 in fees
- Six months: $54 in fees
- 12 months: $108 in fees
Instead of creating a Plan It payment plan, if you were to carry the same balance forward and pay off the same $1,000 charge in three, six, or 12 months with an annual percentage rate of 20.99%, you’d wind up paying the following amounts in interest:
- Three months: $35.19 in interest
- Six months: $62.11 in interest
- 12 months: $117.31 in interest
In this example, you’re getting marginal savings by using a Plan It installment plan versus just carrying the balance forward on your card and paying it off in the same timeframe. This, of course, assumes that you aren’t making any other purchases on the card.
On the other hand, if you happen to have an offer with a monthly installment fee with a lower percentage of the principal, then the effective APR rate for your Plan It offer is reduced, and you’d end up saving money as opposed to carrying forward a balance.
In fact, buried in the terms and conditions of your eligible American Express card is an example table, which lists the effective APR rates with various percentages for monthly installment fees. 
As you can see, a monthly installment fee of 0.90% is equivalent to an effective APR of 19.94%, whereas a monthly installment fee of 0.38% is equivalent to an effective APR of just 8.42%.
Therefore, if you have a lower monthly installment fee offer available through Plan It, which has been as low as 0% during some promotions, you could wind up saving money over the long term, versus if you’d carry forward a balance on your credit card and pay it off in the same timeframe.
So, if you’ve seen Plan It as an option available on your account, be sure to read the fine print of the offer to see if you’re getting a good deal or not.
If the effective APR is above what you might otherwise get with, say, a balance transfer offer, a credit card with low interest rates, or a line of credit, then your best bet is to explore other options that’ll reduce the amount of fees or interest you pay over time.
And if you’re ever not sure which option is best for you, you may want to consult a financial professional, who can help guide your decisions.
Conclusion
Amex Plan It, like most other pay-over-time financial products, offers eligible cardholders to pay off purchases or balances over time for a set monthly fee.
It’s a product that’s easy to apply for, so long as you have an American Express Canada credit card and make an eligible purchase.
However, you’ll want to compare the fees you’ll pay against the APR of your credit card, as well as other options for loans or credit that you’re eligible for, as you may wind up saving money that way.
If you do opt to finance a purchase with Amex Plan It, keep in mind that any decision to use it should be based on a clear assessment of your financial situation, and not used to artificially inflate your lifestyle.
Until next time, try not to carry a balance.
