American Express has introduced a promotional program called Pay Your Way, allowing cardholders to spread their payments on large purchases over specified fixed terms.
It’s handy for those wanting to spread payments whilst still earning points from day to day spend – the interest you incur is only on the transaction you opt-in to for Pay Your Way, not your whole balance (like a balance transfer) – so you can continue to use your card to earn points from day to day transactions,
For now the it’s invitation-only, meaning not all cardholders are eligible to take part – but if you get an offer, here’s how it works.
Using ‘Pay Your Way’
Once you enroll in the program, you will need to decide on two things:
- Your repayment term, which can be either 3, 6 or 12 months; and
- The minimum purchase amount, which can be $300, $500 or $1,000.
Any purchases on your card above the minimum spend will automatically convert into an instalment plan. While there is a 0% p.a interest charged on eligible purchases, there is an establishment fee each time an instalment plan is created, with no limit to the number of instalments that you can have. In effect, it is the credit card equivalent of a layby system. The fee schedule is based on a percentage of the purchase amount and is dependent on the repayment term chosen as follows:
- 2% of purchase amount for a 3 month instalment plan
- 3% of purchase amount for a 6 month instalment plan
- 4% of purchase amount for a 12 month instalment plan
As an example, let’s say you chose a minimum spend of $500 and a repayment term of 6 months. A $600 purchase would incur an $18 establishment fee (600*0.03) which would equate to monthly payments of $103 ($600 purchase amount + $18 interest divided evenly into 6 months).
With a 0% p.a interest rate applied to the purchase, the total cost would be $618 and after 6 months, the purchase is entirely paid off.
The instalment amounts are included as part of the minimum payment due, but beware, if you miss making a minimum payment by the due date, you will be automatically unenrolled from the Pay Your Way, and we guess it’s unlikely you would be invited to join again anytime soon.
The finer details
Participation in this promotion does not prevent you from receiving the standard benefits of your American Express card, including earning reward points, both on the primary and any supplementary cards for all purchases made, along with retaining any insurances and purchase protection.
This is the biggest benefit of using Pay Your Way over a balance transfer – you can continue to use your card and earn points from your day to day spend, without incurring interest on all transactions – interest is only charged on the purchase(s) you opt in to Pay Your Way.
There is no maximum purchase amount set for a purchase to be eligible as part of this promotion, however any purchase that exceeds your credit limit won’t be converted into an instalment plan, nor will any purchase that brings your Pay Your Way balance to 85% or more of your credit limit.
You can cancel your instalment plan at anytime either online or by phone, with the remaining balance being moved to your standard balance and subject to the normal rates of interest that apply to your card. The Pay Your Way terms cannot be altered however once an instalment term begins.
Who benefits from Pay Your Way?
If you’re looking to make a big purchase which needs to be broken into multiple payments, then this promotion will likely appeal – making your cash flow situation more manageable.
Does this make financial sense?
The following is advice of a general nature, and doesn’t consider your personal circumstances.
Translating the establishment fee rates on purchases to a yearly basis, the rate payable for the 3, 6 and 12 month repayment terms is 8%, 6% and 4% respectively.
If you do not pay your credit card off in full per month, then you are likely incurring interest on your purchases anywhere between 15-24%. In this case, you will clearly be better off under Pay Your Way, irrespective of which repayment term you choose.
But if you’re carrying a high interest balance on a rewards card, then you should probably stop thinking about earning rewards points and look for more cost-effective ways to manage that debt.
Likewise, if you do not have access to lower rate funds, such as through your home loan, then you will likely be better off, given that personal loan rates are higher than the most expensive Pay Your Way rate of 8%.
However, if you do pay off your card every month, and assuming you have a home loan, which will likely be costing you between 4-6% p.a at the time of writing, then the only repayment option that might make financial sense in this case is the 12 month option at a rate of 4%.
Go for either the 3 or 6 month option, and you could be better off increasing your loan amount or redrawing your money from a redraw or offset account if you have some spare cash available.
Pay Your Way is a new way to make to make large purchases without making a big dent on your personal cash flow.
However, depending on your personal financial situation, it won’t necessarily be the most cost effective way to fund your purchases – but it might be useful for one-off, larger purchases which you would prefer to break into multiple payments using the line of credit you already have access to in your credit card.