With all the financial concerns bubbling up before the New Year, you’ve probably heard about Buy Now Pay Later (BNPL) opportunities. They’re being promoted on all kinds of purchases, big and small. But what are they, and how do they affect you in the present and future? Here is a closer look at Buy Now, Pay Later purchasing.
Old Idea, New Process
That fact is, this concept is nothing new. I remember when I was growing up, adults would use layaway to buy items without paying the total amount right away. A friend recalls going to Kmart with his mom so that she could put down a couple of bucks at a time on her layaway. Now, with more access to credit, the process has shifted. However, some pitfalls come with Buy Now, Pay Later purchases.
Checking Out with Buy Now Pay Later
At most major retailers, including online, you can choose payments when checking out. With just a click of a button, you agree to pay a portion of the final price, with monthly payments hitting your credit or debit card until the item is paid off. Except, not all of these processes are legit and can lead to significant financial problems down the road.
Interest Rates and Fees
Essentially, BNPL is a type of installment loan. While most BNPL systems don’t charge interest, there are often associated fees. Short-term BNPL programs at checkout allow you to make installment payments every two weeks without any costs, but longer-term loans can have hefty annual percentages, sometimes up to 30%, and will charge regular fees.
We understand that inflation will make the purchase of certain items difficult. Sometimes, the simple Buy Now, Pay Later will be just fine, especially for a small amount. But longer term, or with the use of BNPL apps, it can cause you to dig a bigger credit hole than you can climb out of. Always use caution and always talk to a financial professional before opening accounts.
Protecting Your Credit
It’s important to note that BNPL accounts can’t be used to help you build credit. So, while we encourage installment payments to improve credit, it’s best to stay away from BNPL for this reason. Why? Because they can still send your account to collections, which could negatively impact your credit score. Many users have also struggled to settle disputes, and some apps only have online support, so you can’t contact them by phone.
A message from Dale Marco:
Hi all, Dale here. I want to let everyone know that I work with credit monitoring partners as an affiliate seller. I make a commission when you sign up for these services, but I wouldn’t recommend just anyone. These are organizations I trust and have used myself. My goal with my blog is always to educate, but it’s also part of my business, and I receive compensation when you use the products I recommend.