For many of us, there will be times when you need (yes, or want) to pay for something. now and repay it over time. It’s usually not ideal, but if you want to do it, there are better and worse ways to go about it.
Granted, a credit card is an option here. But frankly, it’s not a good option if you’re just using a standard card with an 18% APR. It is a very high price to pay. So what are you doing? If you’re a bit financially savvy and looking for the best deal for your type of borrowing, you can easily spread or neutralize the cost.
With the new payment plan launched by NatWest, there are now even more options. The big bank has launched a mobile app feature that allows credit card customers to set up fixed monthly payments to pay for purchases between £300 and £3,000 over a period of their choosing.
So the question is, as a way to spread the cost of a purchase, is this payment plan option the best fit or is something more “traditional”, like a 0% purchases better meet your needs? Let’s break it down.
NatWest Payment Plan
NatWest’s new payment plan is unique in its offering. After announcing five years ago that it would no longer offer 0% offers because it feared customers would take on unmanageable debt, the bank recently reversed its position and dipped its toe in the water again at 0 %.
The payment plan is marketed without interest but with a fixed monthly fee. NatWest says the amount you pay each month depends on your credit history, the size of the purchase, and the length of the term. However, as a rough guide, the typical APR (at the time of writing) for the plan will be 10.9%.
Plan users can choose to pay off their purchase over six, nine, 12, 18 or 24 months and can compare the long-term costs of each option in the app. NatWest will allow users to have up to four plans at a time.
To simplify, let’s say you were to buy a new fridge for £300 and you chose a term of six months to pay off your balance. If you were charged a monthly fee of 10.9%, your total interest payments over the term would be around £9.50. By comparison, for a typical APR of 18%, you would have total interest payments of around £16.50.
NatWest says the plan will be part of a customer’s existing credit limit. Depending on the conditions, users may miss a payment; but if a second is missing, the plan will be canceled and the remaining amount will be transferred to the credit card balance and processed as a new payment.
0% buys credit cards
Although the payment plan offers a way to spread the cost of your credit card, you’ll still have to pay something on top of just repaying what you borrowed. If you are looking to make a large purchase and pay it back over time, another (more traditional) option would be to take out a 0% credit card purchases.
A 0% Purchasing Card is a card on which purchases are interest-free for a set period of time; you won’t have to pay any interest charges during the introductory period of this card. Although 0% purchase offers aren’t as long as they used to be, you can still find cards that offer interest-free periods in the mid-to-twenties (months).
With these cards, you still have to make your minimum payment each month. If you miss a payment, it will not only impact your credit score, but you could also lose your 0% purchase offer. Additionally, once the introductory period is over, any remaining balance will be charged at the card’s standard interest rate.
What is better?
To me, there doesn’t seem to be much in NatWest’s plan that makes it a better choice than a 0% buy-in deal. However, here are some positives:
- You are tied to fixed monthly payments, which means you have a clear repayment schedule in front of you. You are not tempted to leave your balance as it is and only make the minimum monthly payments.
- NatWest’s payment plan is based on individual purchases. So you can make a qualifying purchase and select the 24 month option to repay. With a 0% spend credit card, if you’re already 10 months into your 20-month interest-free period and you make a large purchase, you only have 10 months to pay it off.
The NatWest plan offers an attractive alternative to traditional credit card payments or other financing plans offered by retailers for big ticket items. But in reality, you need to be a NatWest credit card holder to access the plan, and it’s not free. If you were to borrow £1,000 over 12 months at 10.9%, you would have total interest payments of around £59. This amount is not insignificant, especially in comparison to potentially no interest charges if you were to put the same amount on a credit card at 0% purchases.