Considering an instalment plan? Here’s how to use a payment plan the right way

What exactly is a credit card instalment plan?

Credit card instalment plans are a buy now, pay later (BNPL) model way to make large or unexpected purchases when you’re short on funds.

By using your card’s instalment credit, you can buy what you need today but pay for it over a period of time. This helps spread the cost of big purchases across smaller amounts.

Before we get into how they work, here are the main benefits and challenges of credit card instalment plans.

Instalment credit benefits

• Makes expensive purchases more affordable
• Often comes with 0% interest
• Simplifies monthly budgeting with equal payment amounts

Instalment credit challenges

• Adds set-up, monthly fees or both to your purchase, plus interest on instalment amounts (unless the rate is 0%)
• Can impact your credit score and be automatically cancelled if you miss or are late making payments (at which point your card’s regular interest rate would apply to unpaid amounts)
• Can encourage impulsive buying and over-borrowing

Unexpected vet bills don’t have to break the bank

Spot Pet Insurance offers coverage for treatment of accidents, illnesses, prescriptions drugs, emergency care and more.

Plus, their preventative care plan covers things like routine check-ups, microchip implantation, and vaccinations, if you want to give your pet the all-star treatment while you protect your bank account.

Get A Quote

How credit card instalment payments work

Unlike revolving credit, where you can re-borrow the same funds, instalment plans involve fixed repayment schedules with interest and fees. Plus, instalment plans can have different fees and interest rates depending on the provider. But unlike the rest of your credit card balance, instalment loan amounts get paid off over a preset period of time (usually 3 to 24 months).

Most instalment plan terms and conditions work something like this:

• You make a purchase using your credit card
• You go online and select the payment plan you want to use
• Your purchase amount (plus fees and interest) is split into equal instalment payments that get included in your card’s minimum monthly payment amount

Let’s say you purchased a new computer that cost $600.

If you chose an instalment payment plan with 0% interest and a 6% fee over 12 months:

• $600 would be deducted from your card’s available credit limit
• Your total payment plan amount would be $600 x 6% = $636
• Your monthly instalment payment would be $636 ÷ 12 = $53

Each instalment payment you make, by the way, gets added back to your card’s available credit.

Can anyone get a credit card instalment plan?

Many credit card issuers in Canada offer instalment plans, including Visa, the big banks and retailers like Walmart and Canadian Tire. But not every card offers this feature. So you should check with your provider to see if yours does—and what the eligibility requirements are.

For example, you may need to:

• Be the primary card holder and have your account in good standing
• Sign up for a mobile banking account
• Make a minimum dollar-value purchase

Some card providers allow multiple payment plans at the same time (TD Bank, for example, lets you have up to 25). Most retail cards, meanwhile, only offer instalment credit at certain stores.

Canada’s top credit cards—find your perfect match!

Maximize rewards, save on interest, or earn cash back. Compare the best credit cards in Canada and pick the one that works for you!

Find Your Card Now

Credit card instalment plans vs other types of credit

As we’ve discussed, credit card instalment plans let you use credit to finance a purchase and repay what you owe through regular payments. But so do revolving credit and third-party instalment loans.

To help you decide what you need, here’s what makes instalment plans different from other credit.

Revolving credit

The revolving credit you use for regular credit card purchases lets you borrow, repay and re-borrow the same money up to your credit limit. You can use it to charge big purchases to your card if there’s room. But instalment credit is sometimes cheaper than paying your regular interest rate while you pay down a large balance.

Installment loans

If approved, you can get an instalment loan through a bank or independent lender. These loans have set end dates and repayments go to paying off the balance. Credit card payment plans are basically a type of instalment loan. But because you access them through your card, they don’t require applications or credit checks.

3 Tips to make the most of your instalment credit plan

If you’re considering instalment credit, following these three tips before signing up will help you use a payment plan the right way.

1. Make sure you really need what you’re buying

Instalment credit plans are super-convenient. But using them can make it easy to overspend and take on more debt than you can afford. Try to avoid making impulse purchases and instead stick to using instalment payments for things you really need.

2. Be prepared to meet all your repayments

Making instalment payments in full and on time prevents credit damage. If you need to use instalment credit but you’re worried about missing payments, consider setting up a pre-authorized debit.

3. Know how much credit you can afford

You should know in advance how much your instalment payments will be and whether they fit your monthly budget. It’s also smart to make sure you can afford the higher interest you’d pay should your plan get cancelled for missing payments.

Are instalment plans right for you?

Instalment plans may help spread costs for expensive purchases, but it’s important to evaluate your financial health. For instance, the household debt-service ratio — representing total obligated payments of principal and interest as a proportion of disposable income — slightly decreased from 14.98% in Q4 2023 to 14.91% in Q1 2024. While this offers a glimmer of stability, households still face high levels of financial commitment.

Additionally, specific data on the usage of credit card instalment plans is scarce. However, the broader trend of increasing credit card debt suggests a growing reliance on various credit options. As of July 2019, total household credit — including credit cards — was $2.2 trillion.

Using instalment plans: The Canadian debt landscape

As of Q1 2024, Canadian households owed an average of $1.76 for every dollar of after-tax income, with a household credit market debt-to-personal-disposable-income ratio of 176.4%. Total household debt payments also increased by 1.4% during this period, while disposable income rose by 1.9%. These numbers paint a picture of growing financial strain, even as some households use credit options like instalment plans to manage cash flow​.

Mortgage interest payments, for instance, have doubled since early 2022, reaching a record $25 billion in Q1 2024, while household credit market borrowing stabilized at approximately $27.2 billion. Given this context, credit card instalment plans may seem appealing as a means to balance short-term financial needs, but they are not without risks.

Final thoughts

Credit card instalment plans can be an effective tool for managing finances when used responsibly. But in light of Canada’s increasing debt-to-income ratio and rising household credit commitments, it’s crucial to evaluate whether these plans fit into your overall financial strategy.

By understanding the costs, benefits, and broader economic context, you can decide if this buy now, pay later option aligns with your financial goals.