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26 Feb 2022

Virgin Money launches new instalment plan option for credit card users

Customers can spread the cost of a purchase over £250 from three to 36 months
Virgin Money will offer instalment plans to its cr

Virgin Money has launched a new instalment option for its credit card customers as a way of spreading the cost of big purchases.

It means you'll be able to pay for purchases over £250 with instalments for a fixed fee, instead of paying interest.

The bank claims it's an alternative to 'buy now, pay later' (BNPL) schemes.

Here, Which? explains how the new app-based feature works and what similar schemes exist for spreading payments.

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How does it work?

If you make a purchase over £250, you will now have the option of setting up an instalment plan.

Instead of paying interest on the debt, you will pay a fixed fee which will be repaid over the course of the plan.

Plans can last from three to 36 months, and you can have up to 10 instalment plans.

Each month, to keep your instalment plan on track, you must pay the 'requested payment'. This figure is calculated by adding the total instalment plan fee to the plan amount, and dividing that by the months in the plan.

The maximum amount you can borrow would depend on your available credit. To cover the plan's fees, you must have at least 5% of your credit limit available. That means the total balance, including transactions and instalment plan fees, cannot exceed 95% of your credit limit.

Virgin Money said customers will also be able to use the instalment feature for balance transfers, as well as big purchases.

What are the fixed fees?

Fees vary depending on the value and number of instalments, but the average customer would pay about £10 to borrow £250 over 12 months, and £120 to borrow £1,000 over 36 months.

For example, if you borrowed £1,000 over 12 months you would pay £40 in fixed fees. Therefore each month you could expect your requested payment to be £86.67.

Virgin Money told Which? the typical APR would depend on the instalment plan, but would be between 7-8%.

Amount borrowedFixed fee 12 monthsFixed fee for 36 months
£250£10£30
£500£20£60
£750£30£90
£1,000£40£120
£1,200£48£144

Source: Figures provided to Which? from Virgin Money

What happens if you miss a payment?

If Virgin Money does not receive the minimum payment by your due date, it will apply a late payment default charge.

It will also let credit reference agencies know which will affect your credit score and could make it difficult to borrow in future.

If you continue to miss payments, it will apply for a court order or sell the debt that you owe.

Virgin Money said in its terms and conditions that if it 'thinks you can afford it', it may take the payment debt using money from your other accounts with them.

Who can use it?

Once fully rolled out by the end of March, it will be available to Virgin Money and Virgin Atlantic Credit Card customers.

What happens if you cancel your plan?

You can cancel your plan at any time.

You will not have to pay anything towards the total instalment plan fees from your next statement, but you will have to pay any instalment plan fees that already appear on your current statement.

You will then be charged interest on what is left on your instalment plan at your standard rate.

Virgin Money said it may cancel your instalment plan if you don't pay the requested payment three times during the course of the repayment, or if it believes it is necessary to cancel it as a responsible lender.

Are your purchases protected?

Virgin Money credit cards are regulated by the Consumer Credit Act 1974.

Under Section 75 of this act, consumers are allowed to make a claim to get their money back if something goes wrong, as long as the price of goods were worth between £100 and £30,000.

Standard BNPL schemes including Klarna, Clearpay and Laybuy are not protected by Section 75 and not currently regulated by the Financial Conduct Authority (FCA), though they are due to be brought under FCA regulation in the future.

Is this the best way to borrow?

If you don't want to apply for another credit card, then it could be a useful feature to spread the cost of a purchase. You also know from the outset how much you are paying to borrow which could help with budgeting.

However, there are similar schemes such as Monzo Flex and Amazon and Barclay's BNPL which may be more suitable to use.

Monzo Flex

Monzo Flex allows you to pay for any purchase over £30 at any retailer that accepts Mastercard (in-store or online) in three instalments, interest-free.

Alternatively, you can opt to split the payment into smaller chunks with pay-in-six and pay-in-12 options, but these plans will attract an interest rate of 19% APR (variable).

If you use a Virtual Flex card you'll be covered by Section 75.

Amazon BNPL

The scheme called Instalments by Barclays allows you to split your Amazon purchases into monthly instalments, lasting between three and 48 months.

Barclays told Which? the headline APR on Instalments by Barclays is 10.9% for online purchases, although promotional rates and interest-free financing may be available at times.

The scheme is fully regulated by the FCA and the minimum spend is £100.

Get a 0% interest purchase credit card

These credit cards are ideal for a big purchase as you won't pay interest on spending for an initial period.

The longest period on the market right now offers up to 24 months interest-free, though the best rates won't be available for every customer and is often determined by your credit score.

However, if you don't manage to pay off the amount within this period, you'll be charged interest on the remaining balance at the card's standard APR - typically around 20%.

Clydesdale and Yorkshire customers move to Virgin app

Some customers have been left frustrated with the Virgin Money credit card app recently.

CYBG, which owns Clydesdale Bank, Yorkshire Bank and digital brand B, completed a deal to buy Virgin Money for £1.7bn in 2018 and all its retail customers and branches have been gradually moved to the Virgin Money brand.

Customers with a Yorkshire, Clydesdale or B credit card had to switch to the Virgin Money app earlier this month, after previously being able to manage their credit card in their existing apps.

Virgin Money told Which? that these customers were informed about the move in October 2021.

It said that the Virgin Money credit card app is already used by other Virgin Money credit card customers and offers a 'more modern money experience, meaning customers can self-serve including being able to update personal details, freeze their card and access balance transfers'.

On Monday 14 February, some customers experienced issues registering with the new app. Virgin Money said the issue was resolved by Tuesday and the remaining customers were able to register from Wednesday 16 February.

A spokesman said the app has been running since then and apologised for the issues.