By Jill Jaracz


5 Min. To Read

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Citi is getting in on the personal loan market with its new Citi Flex Plan program. This option allows cardholders to avoid the hassle of applying for a personal loan and just use part of their credit limit as a pool of money that comes with a fixed interest rate and a fixed payment plan.

Mark Mason, chief financial officer at Citi, talked about the program during Credit Suisse’s Financial Services Forum in February. At that point the company had been conducting a pilot of Flex Plan for several months as part of its strategy to bring more products to the market.

Since then, it’s slowly rolled out the program across its card portfolio. According to a letter sent to cardholders, Citi Flex Plan has two components: Citi Flex Pay and Citi Flex Loan.

Citi Flex Pay allows you to take eligible transactions and pay them off over time in fixed payments with a fixed interest rate.

Citi Flex Loan allows you to create your own personal loan with the money that’s available in your credit limit. You can set the amount you want for the loan and the number of payments you want to make in order to pay it off. Citi will set a fixed APR for that loan and tell you what the monthly payment will be in order to pay it off in the time you specify. Then you’ll pay off the loan, along with any balance that you have from making credit card purchases.

While having easy access to a personal loan can be a helpful way to make a large purchase, it always pays to read the fine print of the offer.

One of the important things to keep in mind is how Citi will allocate your payments to the different balances on your card. Every month you’ll be required to make the fixed payment on your Flex Loan, as well as the minimum payment due on any purchases.

If you pay any more than the minimum monthly payment, then Citi looks at the interest rate on your card purchases and on your Flex Plan and it puts the excess toward whichever product has the higher interest rate.

Let’s say you had a Flex Plan that had a $250 monthly payment, with an interest rate of 14.99 percent, with no other balance outstanding. Then in a month, you made $1,000 in additional purchases, but the interest rate for new purchases is 19.99 percent. You’re able to pay $1,250 for the month in order to cover both the new purchases and your Flex Loan amount. Because the purchase APR is higher than that of the Flex Loan, Citi will put $250 toward the Flex Loan and $1,000 toward new purchases. This will take your purchase balance down to zero, and you’ll still have the remaining balance on your Flex Loan.

If that’s reversed—if the Flex Plan has a 19.99 percent interest rate, and your purchase APR is 14.99 percent, Citi will apply more of your payment to your Flex Plan. Let’s say the minimum payment on your new purchases is $25. Of that $1,250 payment you made, $25 will go toward your new purchase balance, and $1,225 will go to your Flex Loan.

If you’ve got past due amounts or have gone over your credit limit, those will be included in the minimum monthly payment.

You might wonder why someone might take out a loan that has a 19.99 percent APR. Well, it’s easy money to get, particularly if you need a smaller amount, need money quickly or can’t get a loan otherwise. Citi may also offer promotional APRs in the single-digits that would make this product an attractive option, much like when you get a balance transfer offer that’s really good.

However, it’s best to keep that interest rate in mind if you’re considering this option, as you might be able to do better with a personal loan. According to Bankrate, the average personal loan APR for someone with an excellent credit rating is currently at 9.8 percent. Those with good credit will pay around 15 percent. Those will average or poor credit will pay over 21 percent.

Compared to the Flex Plan rate I received in my cardholder letter, which will be 16.24 percent, this option isn’t a great idea unless I had an average or poor credit score. Even though it’s a convenient way to get access to money for a major purchase, it’s good to make sure you won’t truly pay for this option in the long run.

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