HSBC launches new 'buy now, pay later' option for credit card customers – is it any good?

HSBC has launched a new way to pay, so you can spread the cost of a credit card purchase for longer without paying interest.

The buy now, pay later style instalment plan will let customers pay back purchases of over £250 over three, six or twelve months.

Anyone with an HSBC credit card will be able to convert a purchase into an instalment plan, with a monthly fee instead of interest.

A £250 purchase switched to an instalment plan and paid back over three months will cost £1.67, for example.

The bank says that converting to an instalment plan could save money overall.

Usually with a credit card you pay no interest at all if you pay off the purchase in full within around a month.

Credit cards: a word of warning

WHY you need to be careful with credit.

With credit cards, you should ALWAYS pay off your balance each month unless you have a 0% interest rate offer and are spreading the payments over a number of months.

If you don't then you could be paying up to 18% APR.

If you had a balance of £1,000 then it would take you 18 years and three months to pay off the balance and you'd pay £1,204 extra in interest.

You should never borrow more than you can afford to pay back.

But when you pay off a credit card over a longer period of time, interest is applied to the outstanding balance.

The length of time it takes to pay off and how much interest you pay will depend on how much is on the card, the interest rate of the card and how much you pay off each month.

HSBC said repaying £1,500 through an instalment plan over 12 months could save £99.16, compared to paying interest on a credit card with an APR of 21.9% over the same time.

The monthly repayment in instalments, including a fee of £90 in total, would be £130.63.

Repaying the same amount on a credit card would cost £138.95 per month, if the payments were fixed, with interest of £166.66 over the whole year.

Card users can switch to paying by instalments through the HSBC app, if the options is available to them and they will see the costs of each period before deciding which one to go for.

Andrew Rankin, HSBC's head of unsecured products, said that the new feature will help people budget better because the monthly payment is fixed.

With interest on a credit card the monthly payment changes as you pay it off and as interest is calculated.

He said: "A customer may have a bought items of furniture from different shops, and combining them into one payment plan may make it easier for them.

“Customers may also find it helpful to pay for a higher cost individual item like a new laptop or phone.

"Splitting the cost into equal payments with a pre-determined end date and small fee may be preferable to them and gives them more flexibility."

Experts say that the new feature gives consumers more options and is likely to be cheaper than an overdraft.

Rachel Springall, finance expert at Moneyfact, said: "It’s great to see an in initiative to put borrowers in more control of their spending and to allow them save some money on interest costs and gain a bit of breathing space on unforeseen high cost expenses.

"The unexpected cost of white goods, electronics or repairing a car to ensure its road worthy could mean using a credit card to cover the cost, especially if someone has no savings spare, so being able to spread the cost can be much cheaper than dipping into an overdraft."

But shoppers should still always shop around to see if there's a better borrowing option.

Ms Springall said: "It’s important customers carefully weigh up the costs when they borrow but it could provide some piece of mind to have a ‘buy now pay later’ facility to utilise in times of need."

How does the new HSBC Credit Card instalment plan work?

Existing HSBC credit card holders will be able to see the feature on the HSBC app, if it's available to them.

They will be able to convert a purchase into an instalment plan, with a monthly fee instead of interest.

There's no credit checks as it's not additional lending – you've already paid, it's just a different way of paying it back.

Up to 10 separate purchases of at least £100 can be combined into one plan, as long as it adds up to at least £250.

Customers can have up to six instalment plans at once.

We've asked if there's a limit on amount you can have on a plan, either individually, or all together, and will update when we hear back.

You can chose how yo pay your instalments when setting up the instalment plan.

If you miss a payment for two month in a row, your instalment plan will be cancelled and the remaining debt will revert back to your credit card.

You can also cancel the plan at anytime and the same will happen. You'll go back to paying interest instead of fees in both instances.

You can also pay off the instalment plan early, either all of it or part of it to pay it off quicker and there's no penalty for doing this. If you pay it off quicker you can reduce the amount you pay in fees.

How to apply for a credit card

HERE is everything you need to know about applying for a credit card:

Which card do you need: The first thing you need to do if figure out what kind card you are going to need.

Luckily for you, you are in the right place as this article will explain what kind of card you need for your situation.

Check your credit score: Your credit score determines how reliable you are when it comes to borrowing money.

The better your credit score the more likely it is that banks will accept you for the best deals.

When you apply for a credit card your bank will check your credit score to see if you suitable for the deal they are offering.

If you have a bad credit rating the bank may not want to lend you money in case you can't pay it back.

You can find out how to check your credit score here

Don't apply all over the place: If you just apply for loads of different deals you may end up hurting your chances of getting the best deals.

If you apply and your application gets refused it will leave a mark on your credit file which means that providers might be less likely to lend to you.

Always check using an eligibility such as MoneySuperMarket's Smart Search to see how likely you are to be accepted for a credit card.

Don't believe everything you see: Just because you see a credit card advertised with a great rate online, it doesn't mean that that is the rate you will end up getting.

By law credit card companies have to give the rate they advertise to the 51% of the people who successfully apply for a credit card.

But, depending on your credit score you might get a different interest rate or a shorter 0% period.

You don't have to accept the rate you are offered and you can always shop around for a better deal.

Fill in your application form: Once you have decided on the card you are after just fill in the online form on the credit card company's website.

Try to be as honest as possible with your credit details.

If your application is declined it might be worth asking the bank for a copy of your credit file to see why it is that you weren't accepted for the credit card.

If you are accepted can take a week or two for your card to arrive.

If you have some debt on the credit card and some on the instalment plan, don't forget you'll still have to make at least the minimum repayment on the card too.

We've asked HSBC if purchases will still benefit from section 75 protection and will update when we hear back.

Section 75 means means if the retailer you're buying from goes bust or your goods aren't delivered or the items are faulty, you have the legal right to go to your card provider to get your cash back if it cost more than £100.

How does HSBC's credit card instalment plan compare?

Buy now, pay later companies like Klarna have exploded in recent years and give shoppers the ability to buy something and pay later without interest.

Another option they offer is to spread the cost and pay in instalments, much like this new feature from HSBC.

With Klarna it's interest-free and there are no fees when paying in three monthly instalments.

Instalments over a longer period of between three and 36 months can come with interest charges – exactly how much will depend on how much it is and the time period, but the representative APR is 18.9%.

Klarna and other BNPL providers are a payment option at the point purchase.

With HSBC's new plans, you pay with a credit card upfront and can then switch to an instalment later on, and compare different repayment periods and associated costs.

Andrew Hagger, Personal Finance Expert from Moneycomms.co.uk said: "It is similar to BNPL, but the difference is you can use the HSBC offer on anything so you're not restricted where you use it.

"It's a shame there is no option for the customer to borrow for free – Paypal  for example, currently allows customers to spread purchases over £99 over four months with no charge.

HSBC's instalment plan could still be cheaper than other options, though as always, it's worth shopping around to check first.

Mr Hagger said: "From HSBC's examples it seems that customers borrowing larger amounts will save the most.

"It's a bit cheaper than standard credit card rates but a lot cheaper than an agreed overdraft where most banks are  now charging almost 40% interest."

Ikea recently launched its own buy now, pay later style payment option – here's how it works and how it compares.

The Government will trial a no-interest loan scheme to help low-income households pay off any unexpected debts.

Meanwhile, Barclaycard has cut credit limits for thousands of customers.

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