Chase plans to offer two new types of financing options to existing credit card customers called My Chase Loan and My Chase Plan.
They’re personal loan equivalents to existing credit card customers -- under very specific circumstances.
Each will represent an alternative to making purchases with credit cards or other types of financing.
At a more basic level perhaps, both loan programs represent an attempt by the bank to offer ways for Chase customers to obtain instant financing when making large purchases.
This will provide consumers with an alternative to simply charging such purchases on their credit cards.
Learn how they work and whether you should consider using My Chase Loan or My Chase Plan to finance a future purchase.
What is My Chase Loan?
My Chase Loans will be available for targeted Chase credit card customers, enabling them to borrow against unused credit card limits.
By using the Chase mobile app, you can select the loan amount which will then be transferred into your checking account, in the form of a cash loan.
The loan will require approval, and you’ll then be charged interest on the amount borrowed.
The loan is designed to be a hybrid between a personal loan and a cash advance.
It will reduce the fees and interest typically associated with both personal loans and cash advances on credit cards.
My Chase Loan will be earmarked for larger purchases, like furniture or home remodeling. It’s an attempt by J.P. Morgan Chase to offer personal loans to existing clients.
My Chase Loan will come with a relatively high APR. The rate is variable and will adjust with changes in the prime rate.
This will be an advantage to anyone paying a higher rate on credit cards, like something in the 25% range.
But, if your credit card has an APR in the 15% range, My Chase Loan won’t make much sense.
No interest will be charged on a purchase if you pay the entire balance by the due date for the month.
What is My Chase Plan?
My Chase Plan is designed to provide point-of-sale financing, allowing Chase cardholders to choose past purchases of $500 or more, and finance them over longer terms.
Customers would be charged monthly fees rather than interest.
The main difference between My Chase Plan and My Chase Loan is:
- My Chase Plan is designated for smaller purchases,
- My Chase Loan is earmarked for larger loan amounts
One of the main benefits to consumers is that charges against their credit lines through My Chase Plan will be established for limited terms and (sometimes) lower interest rates.
This will avoid rolling the new charges into existing credit card lines, where they’ll be charged higher interest and work on a revolving basis.
The consumer will have more control over credit card balances, with a very specific timetable to pay off the additional financing.
My Chase Plan will forgo an interest rate in favor of a fee (fixed finance charge).
The current rate is 1.72% of the amount of each purchase transaction. That works out to be 20.64% on an annual basis, or just slightly higher than the interest rate charged on My Chase Loan.
You will have the ability to limit the number of billing periods for the loan arrangement. Since the fee applies to each month the loan is outstanding, you’ll be able to reduce total fees paid by keeping loan terms short.
No finance fees will apply on a purchase if you pay the entire balance by the due date for the month.
This will be a benefit for anyone who is paying a higher rate on their credit card.
But if your rate is lower, you probably won’t be interested in taking advantage of this arrangement.
Impact on Credit Scores
To be clear:
The balances on both of these Chase financing options will be a part of your Chase credit card account.
Based on the fact that credit limits are determined by unused credit line balances, we should also expect both loan types to affect your credit utilization -- and, as a result, your credit score.
Chase has not indicated, nor can it be inferred, that the experience with either loan type will be excluded from the normal credit reporting process.
Should You Use these Financing Options?
In analyzing My Chase Loan and My Chase Plan – at least based on the information currently available – it seems these financing options are primarily ways for Chase to offer personal loan alternatives to existing customers.
But in the vast majority of purchase situations, it’s difficult to see how this will benefit consumers.
The cost factor
The interest rates or annualized financing fees will only be beneficial to those who currently have regular APRs of over 20% for their existing Chase credit card lines.
But for the many who are paying well below 20% APR, there’s no benefit to either plan, at least from a cost standpoint.
The ability to establish the loan payment term.
For example, since credit card balances roll over from one month to another, the ability to limit the term to – say, six months – would enable the consumer to pay off the additional borrowing much quicker. That would eliminate the likelihood of simply carrying a balance in perpetuity.
However, even with a traditional credit card line, it’s possible to pay off the balance in less time.
You can simply set a time limit of six months, and make payments accordingly. The ability to set a specific term seems a bit superfluous.
If the main purpose of using either loan plan is to simulate either an unsecured personal loan or a cash advance, there are lower cost options, particularly for those with excellent credit.
For example, many unsecured personal loans are available at significantly lower interest rates for people with great credit. It may also be possible to apply for a personal loan at a local bank or credit union for a much lower rate than what’s being charged by Chase.
Simplicity and the possibility of denial
Second is the simplicity factor. It will be easier to simply swipe a credit card on the spot, rather than awaiting approval for one of the loan plans.
Also, the point-of-sale application holds the very real possibility of the decline.
A consumer only needs to be declined once under either plan, and the humiliation it will cause will likely keep them from ever accessing the plans again.
This is a real possibility, and it’s included in the disclosures. It includes the following language relating to both My Chase Loan and My Chase Plan (effective August 8, 2019):
“We are introducing two new features, My Chase Loan and My Chase Plan, under which Flexible Financing Offers may be available to you from time to time, subject to the new rates in fees and Cardmember Agreement terms described below.”
It appears neither My Chase Loan or My Chase Plan are permanent features of your current credit card arrangements with Chase.
The language above gives them the right to make these offers available at certain times, but also to withdraw them at others.
They also reserve the right to decline a My Chase Loan transaction for any reason, which sounds open-ended in an uncomfortable way.
Stated criteria for either loan arrangement includes your creditworthiness, your credit limit, and your past account behavior. Fail to qualify under any, and your application may be denied.
This is another area of potential concern, the more so because it’s a provision you must specifically opt out of to avoid.
And since the notification is buried in the fine print, it’s unlikely you’ll opt out or even be aware of the provision.
This disclosure says the following:
“Unless you timely reject the agreement to arbitrate, disputes with us may be resolved by binding arbitration. With arbitration, you cannot go to court, have a jury trial or initiate or participate in a class action for your dispute(s) with us. In arbitration, disputes are resolved by an arbitrator, not a judge or jury, and procedures are simpler and more limited than rules applicable in a court.”
You can reject the binding arbitration agreement by notifying Chase no later than August 7, 2019.
But if that date comes and goes – because you didn’t see this provision buried in the fine print – you will have effectively waived any legal recourse, without ever knowing you’ve done so.
Compared to Credit Card or Loans
On analysis, My Chase Plan and My Chase Loan are useful in only a very limited number of circumstances, and only for certain Chase credit card customers.
The net effect of either plan is little different from the basic use of a credit card.
Either provide on-the-spot financing, which is exactly what a credit card does.
And while the interest rate or finance fees may be lower than credit card interest for some consumers (but not others), the loan amount will still apply against the user’s credit card limit.
In other words:
It won’t be a source of new credit, but rather accessing existing credit lines.
The addition of the two plans certainly provides Chase customers with additional financing options.
But the value of those options is extremely limited, since most consumers are already well-served by existing credit card arrangements.
Use of either may apply in very limited circumstances, but neither fundamentally changes or improves on the value of a credit card account.