Are flexible payment plans a smart way to buy?

Hanna Horvath Headshot


Hanna Horvath, CFP®

Hanna Horvath, CFP®

Managing Editor & Certified Financial Planner™

Hanna Horvath, CFP®, is a certified financial planner and former managing editor at Policygenius. Her work has also been featured in NBC News, Business Insider, Inc. Magazine, CNBC, Best Company, and HerMoney.

Published|3 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

Looking to purchase a new fridge, but don’t have enough saved? Need a new mattress after a bed bug infestation?

You may not need cash on hand to make an expensive purchase. Consumers can instead opt to use flexible payment plans, dividing the bill into more manageable payments over time.

“These programs allow consumers to finance purchases they may not have the money for up front,” said Ashley Dull, spokeswoman for

Financial startups like Affirm and Afterpay offer a chance for buyers to avoid the up-front cost of expensive or unexpected purchases. Some credit card companies, like American Express, as well as retailers like Amazon offer similar programs.

But are these programs legit? Here’s how they may hurt consumers financially.

How do flexible payment plans work?

Flexible payment plans are essentially on-the-spot loans that don’t come from a traditional lender, like a bank or credit union. The loan is typically paid back in monthly installments, depending on the agreement.

For example, Affirm allows users to shop at select stores online and select them as a payment option upon checkout. Buyers can then select the length of their payment schedule and confirm the loan with Affirm. Interest rates on Affirm loans range from 10% to 30%, and repayment periods can be three months, six months or 12 months.

Both Affirm and Afterpay did not respond to requests for comment.

In some cases, payment plans may help consumers budget their purchases better or provide a lifeline in an unexpected emergency. They can come in handy for those with irregular incomes. (Here’s how freelancers can better manage their money.)

But like with any loan, flexible payment plans can snowball into debt.

How flexible payment plans can lead to debt

“Essentially, already is debt,” said Dull. “You're borrowing money because you can't afford to pay for the item outright, and you'll have to pay that money back as agreed to in the terms of the loan.”

Flexible payment plans often appear enticing, offering incentives like 0% financing for a limited time for those with good credit. But if a buyer has a less-than-ideal credit score or misses a payment, they could be charged up to 30% interest, said Dull.

Some payment plans, like the Pay It Plan It program by American Express, charge a monthly fee to pay off large purchases, typically a fixed percentage of the total loan amount. Those fees can add up.

“Borrowing money rarely comes without a cost,” Dull said. “So you have to decide if paying extra for the item now is more important than waiting until you have the money to pay for it later.”

Seeing the price broken up into smaller payments may give buyers a false sense of affordability and security, said Beverly Harzog, a credit card expert at U.S. News World & Report. Consumers may feel like they can afford to spend more money, leading to debt.

“These programs may encourage people to buy things they can’t afford,” she said.

Struggling with debt? Here’s how to pay it off in 30 days.

Should you sign up for a flexible payment plan?

Think carefully before signing up for a flexible payment plan.

“People really need to read the fine print and you know what you’re getting into. Keep your eyes wide open and ask questions,” said Harzog.

Shop around first to find the lowest price before signing up for a payment plan. If you qualify for 0% financing, be sure to pay the total balance off during the 0% period or you may be subject to deferred-interest charges.

A smarter way to make large purchases may be with a credit card. Some credit cards offer up to 15 months or longer with no interest, compared to a company like Afterpay, which requires the debt to be repaid in just two months, said Dull. But be mindful: Credit card debt can just as easily accumulate.

Avoid the need for payment plans by building up an emergency fund to cover unexpected expenses and a splurge fund to cover vacations and other high-priced items.

“Don’t make your new normal,” said Harzog. “You need to get a fund in place to cover this stuff.”

Want more stories like this? Sign up for the Easy Money newsletter.

Image: Oliur