The Downsides Of Buy Now, Pay Later

Buy Now, Pay Later promises instant gratification, with dire financial implications to follow.

Tuesday, November 2nd, 2021

Buy Now, Pay Later Loans, also known as point-of-sale loans, are the newest trend in payment options that experienced a massive surge of use during the outbreak of the pandemic.

As the name implies, Buy Now, Pay Later allows you to make an online purchase and receive it instantly. You continue to pay for it in a series of installments, over a specific period of time.

The lure of using this payment option is that it makes purchasing an item even easier than ever, even financing it, without having to think about the ramifications of these purchases. 

It’s these very ramifications that can get consumers into a lot of financial trouble. Before diving in and using this payment option, here are some sobering facts that you must get familiar with.

What You Need To Know About Buy Now, Pay Later

There is always a cost to borrowing. Therefore, consumers must be vigilant about hidden fees and extra charges. In the fine print, there will be mention of high late fees and extra charges for scheduling payments. 

Consumers must read the terms and conditions carefully to know the requirements in advance. 

Although some providers may tempt consumers with 0% interest, this may not last the total length of the loan. This can mean exorbitant finance charges at the end as well as astronomical fees if you happen to skip or miss a payment. 

Also, there are some programs where a fixed fee will be added to your monthly payments, which in the end, means you end up paying more than buying your item outright. 

The irony with Buy Now, Pay Later is that if you happen to make all your payments on time, this will do nothing to improve your credit score as they don’t get reported to the credit bureaus. However, be late on one payment and this will be reported to the credit bureaus, impacting your overall credit score. 

Another important factor to consider is that BNPL loans are still relatively new to the market, and therefore, government regulations are not up to speed. This essentially means that consumers are generally on their own as these short-term loans contain fewer consumer protections. 

Should You Use Buy Now, Pay Later?

As previously mentioned, Buy Now, Pay Later is incredibly tempting for consumers to get their hands on a product when they are short on cash. 

However, when it comes to incurring debt, one must approach this with great care. BNPLs are a great payment option for big-ticket expenses such as a laptop or a new mattress. Even if the BNPLs are simple, require no credit checks, and are a low-cost payment plan, you are still taking on debt. If you must take on debt, let it be on essential items. 

Another feature to consider is to seek out plans that offer zero to very minimal interest. This will lower your payments considerably and it will make it a whole lot easier to pay your loan back in full. 

If paying your bills is already a daily struggle, it is best to steer clear of BNPLs. It is too easy to overspend, which could mean high late fees, which can lead to being sent to collections, which could lead to damaging your credit score

Proceed With Caution

Let’s face it, BNPLs facilitate impulse buying. If consumers already struggle to keep their credit card spending to a minimum, BNPL will only exacerbate the problem, tempting them to accumulate more debt well outside their credit card limits. 

It is always best to weigh your options and consider using a credit card, which at least rewards good payment behavior, builds your credit, and earns rewards and cashback. If you are still considering BNPLs, do take the time to read the fine print. 

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