Installment plan or credit card? Get the best of both for big-ticket purchases

Before credit cards were widely accepted as a way to pay for things people couldn’t immediately afford, there was the installment plan. A what, you might ask? An installment plan is a form of credit where, rather than paying a lump sum, you commit to paying for the purchase in smaller amounts within a specific amount of time, and interest is applied either during the pay-down period or if you miss a payment.

Who offers installment plans in Canada

Installment plans date back as far as the 1920s and, in the last several years, installment plans have had quite the resurgence with fintechs like Square, Sezzle and Affirm offering this service, and partnering with many major retailers to allow their customers to buy now and pay later. (Square, however, has currently paused their installment payment program during the COVID-19 pandemic). Among Canadian options, PayBright lets approved Canadian consumers pay using an installment plan at participating retailers like The Source and Samsung, and CIBC launched its CIBC Pace It feature on credit cards allowing for low-interest installment payments on eligible credit card purchases in September 2019. Note that CIBC Pace It is not available to Quebec residents.

How do installment plans work on a credit card?

You can easily use a credit card to make a big purchase or pay for something unexpected, but credit card interest adds up if you aren’t able to pay off your balance quickly. As a less expensive option, installment plans are now available on eligible CIBC credit cards with the CIBC Pace It feature. It allows you to convert a single eligible purchase of $100 into an installment plan with an interest rate below their card’s annual interest rate. Note that separate purchases can’t be combined into a plan; you have to create a new one for each purchase that qualifies.

“It’s a great way to plan your purchases and repay them at a low interest rate,” says Jennifer Davidson, vice president, cards product management and benefits strategy at CIBC.

How CIBC Pace It Installment Plans work

Set up an Installment Plan via CIBC online or mobile banking in three simple steps. First select an eligible purchase your transaction history, marked with an “Eligible for Installments” label. Next choose from the the plans based on what works for you: six monthly payments at 5.99%, 12 monthly payments at 6.99%, and 24 monthly payments at 7.99%. Finally, agree to the Terms & Conditions, and you’re all set.

Davidson explains that one handy feature is the ability to see how your payment amounts will change depending on the time frame you select. “And then just have that conversation with yourself to say, ‘Can I afford that amount?’ because if you can commit to that, then you can take advantage of a much better rate.” You’ll be charged a One Time Installment Fee of 1.5% of the purchase price.

Your monthly payment appears as part of the minimum payment and amount due on your credit card statement, so you only need to worry about making one payment to your credit card. If you miss a payment moving forward that principal is charged at your credit card’s regular rate, while the rest of your installment plan continues. Plus you can also cancel a CIBC Pace It installment plan if you no longer need it.

There are several advantages to the CIBC Pace It installment plan. By creating a plan, you have access to a low interest rate but still get the benefits of your credit card, like cash back, insurance and rewards, and contact-free payments (tapping at point of sale, and paying online). And because the purchase has been made within your credit limit you don’t have to go through an additional credit check or approvals to use CIBC Pace It. There are eligibility requirements, however. For instance, you are the primary cardholder of an eligible CIBC credit card that’s in good standing, not a resident of Quebec, and the purchase was posted in your current statement cycle. Learn more about how to add Pace It to your credit card, visit cibc.com/paceit.

Pay in installments for these financial benefits

The installment plan for credit cards can also help with budgeting and cashflow management, since it provides a goal to pay for the item by a particular date and you know the payment amounts. Say, for example, you want to upgrade your laptop. Or maybe you have uneven cash flow, but an unexpected expense pops up (like the fridge breaking down) and you need to make a large purchase. Paying in installments with CIBC Pace It allows you to save on interest. It can also help if you’re saving for a big expense with a hard deadline, like post-secondary tuition fees, and unexpectedly need to make another major purchase. An installment plan gives you the flexibility to put the unexpected cost on your credit card at a low rate.

The modern installment plan

Installment plans may have evolved, but their purpose remains the same: Get access to credit and pay it off in a disciplined manner that payment terms that work for you. And with today’s uncertain economy, having this tool in your cash flow management arsenal could be helpful. So, it seems as though what’s old is new again.

For full information on the CIBC Pace It credit card feature, including all legal details, click here.

This article is presented by CIBC Pace It, as part of the MoneySense guide to debt management.