Pay-over-time financing vs. other methods of payment: How your options stack up

By E. Napoletano | Citizens Contributor

You're finally buying that big-ticket item you've wanted. Maybe you've saved and budgeted enough to pay cash, or maybe you're planning to put it on a credit card. But as you go through the checkout process, you glance at the other methods of payment available and wonder if another payment type would make more sense.

To help you feel confident you're choosing the best way to pay for a large purchase, it helps to understand the many options. From flexible choices like pay-over-time financing and credit cards to cash, debit cards and smartphone apps, here are details about each to help you match the best payment with your purchase.

Pay-over-time financing

Pay-over-time financing offers you a way to break large purchases into affordable payments, usually with low or no interest and fees. With this method, the purchase price transforms into installment payments. You'll make fixed payments for a fixed term, and you'll know the full total before you seal the deal.

Here's how it works: Say you have your eye on a new laptop or the latest gaming console, but buying it now would drain your savings. Choosing pay-over-time financing at checkout makes the large purchase affordable with a set number of payments over time rather than all at once. This helps keep your savings intact in case you need it for an emergency.

The key to pay-over-time financing success is to ask yourself if payments would comfortably fit into your monthly budget for the number of payments needed for a full payoff. If you follow the 50/30/20 budgeting rule, your wants should take up no more than 30% of your income.

Pay-over-time could be a great way to pay when:

• You want to preserve your cash savings.
• You could access attractive promotions, like 0% interest for a limited time.
• Lower payments would help fit a larger purchase into your budget.

Potential drawbacks of the pay-over-time option include:

• It may not be offered by the merchant you want to buy from.
• You may need to reapply to use it for a purchase with a new merchant.
• Repeat applications in a short period could affect your credit score.

Other methods of payment for large purchases

You may be aware of other methods of payment, but it helps to put some thought into when each makes the most sense to use. Here's a deep dive into the common ways to pay plus the pros and cons of each when it comes to major purchases.

Cash

Cash will likely never go out of style. It's a great way to pay for the smaller things you need quickly and may mean an immediate discount at an in-person point of sale if the merchant charges fees for using a card. It's widely accepted around the world — though not at online checkouts.

Paying cash for big purchases could be ideal when:

• You're buying from a local seller who doesn't take e-payments.
• You want to limit your spending to your cash on hand.
• You're tech-averse and prefer old-fashioned greenbacks.

Potential drawbacks of paying cash for large items include:

• You may encounter fees or withdrawal limits at ATMs.
• Large cash withdrawals may put you at risk for loss or robbery.
• Tracking cash spending takes manual effort, and not doing it can throw off your budget.

Debit cards

Debit cards are essentially a convenient form of cash. It may be easy for you to have enough in your checking account or move money to it from your savings and then swipe, tap or enter your numbers to make a big purchase. You don't have to worry about interest charges. You need only make sure you have enough money in your account.

A debit card can be a smart way to pay for a large purchase when:

• You want the one-and-done feeling of paying cash.
• You've saved up for a splurge and have the cash on hand.
• Paying cash won't put your monthly budget in a bind.

Potential drawbacks of using a debit card include:

• You could have overdraft charges if you don't carefully manage your balance.
• Splurging on a large item all at once could affect your cash flow for paying other expenses.

Smartphone apps

The number of digital payment methods accepted by retailers grows by the year. Apps can let you complete a large purchase with one-click convenience and usually encrypt your payment information to shield your financial information from fraudsters. However, these digital payment methods aren't accepted everywhere, and they tend to not come with flexible payment terms.

Payment apps can be useful for big purchases when:

• The retailer you're buying from offers your preferred app as an option.
• You want the transaction to be cash-like without dealing with cash or direct financial information.
• You have the funds ready to back up the purchase and don't need flexible terms.

Potential drawbacks of payment apps include:

• Not all retailers accept a wide range of digital payments.
• Retailers or the app may charge a fee for transactions involving a purchase.
• The third-party setup can add steps if you need to reverse a payment or make a return.

Credit cards

Credit cards are powerful financial tools that could accentuate your finances in multiple ways. Borrowers could use them to build credit and establish a responsible payment history, boosting their credit scores along the way. Many cards also offer points, miles or cash back, which take your big purchase and turn part of it into redeemable rewards you can apply to decrease the cost of future purchases.

A credit card could make sense to pay for big purchases when:

• You want to build up your credit history with smart habits.
• You plan to pay the balance quickly to limit interest charges.
• Your credit card offers rewards that give you valuable, useful savings.

Potential drawbacks of using a credit card include:

• Unless you monitor your use, credit cards could easily lead to overspending.
• They often charge high interest rates for carried-over monthly balances.
• Earning rewards isn't worth it if you're paying out too much in fees and interest.

Pay-in-four repayment plans

Pay-in-four methods of payment are showing up more at online checkouts. The way they work is not entirely unlike pay-over-time methods. A third party intervenes to split your total purchase into four payments that are generally due weekly, bi-weekly or monthly. These plans could be easy to qualify for and show you exactly what you'll pay and how often, but they may not be companies you know or have a relationship with and may have terms you need to review closely to avoid paying surprise costs.

A pay-in-four repayment plan could be a good choice for a big purchase when:

• The merchant you're buying from offers this plan.
• Dividing your large purchase into four equal payments makes it affordable.
• You're sure you're getting low or no interest charges and a clear offer of the terms.

Potential drawbacks to the pay-in-four method include:

• Repayment is limited to four payments on a designated schedule.
• Knowing how and to whom you need to make payments may be unclear.

How Citizens Pay's pay-over-time can uplevel your next purchase

Whether you're shopping for a stylish bedroom suite, some wicked ski gear or just the perfect TV for game day, it helps to know that you have financing options, and that's where Citizens Pay can help. It's a pay-over-time financing option that combines the best features of pay-over-time and credit card financing: a line of credit and longer financing terms for life's bigger expenses.

Say you just scored your dream job and salary. As you revamp your budget with your updated income, you realize that you can finally afford to upgrade your sofa. But instead of laying down a hunk of cash or charging it to a high-interest card, you can visit one of the Citizen Pay retail partners and select Citizens Pay at checkout. You'll go through the approval process on the spot, then you simply select the payment and term options that fit your budget to complete the purchase. You'll then have a new job and a new sofa to celebrate.

With Citizens Pay, you get a credit line that can be used at the retailer with whom you opened your Citizens Pay Line of Credit Account. This means you won't have to reapply every time you make a purchase at that retailer. And our retail partners often have terms you won't see from a credit card company. So while you might find yourself shopping at a moment's notice, you won't have to pay dearly for last-minute financing. Plus, you'll be dealing with people you know and have convenient anytime access to your account. You simply log into the Citizens Pay online portal or mobile app¹ and make a one-time payment or set up auto pay.

What will your best payment option be?

When the time comes to make a large purchase, it's good to know that you have options. You may find that cash or credit is the right fit, or you may find that pay-over-time is the financing solution you've been looking for.

Stretching out your payments for big-ticket items over time can get you what you want or need at payments you can afford and without excess fees or high interest. With pay-over-time options like Citizens Pay, you can have the peace of mind that the financing you need is readily available from a bank you already trust.