8 Things to Know About “Buy Now Pay Later” Account

Have you heard of the concept of Buy Now Pay Later? The idea is growing in popularity, especially as a way to get something you want today – such as clothing, appliances, electronics or any other consumer items – and delay repayment until later.

While attractive and convenient, especially in times of inflation, there are some things to remember when making a purchase and managing debt at the same time.

What is Buy Now Pay Later?

Buy Now Pay Later arrangements are considered point-of-sale installment loans. Generally, a Buy Now Pay Later offer is a loan that divides payments for what you buy into a number of equal payments over time, with the first payment typically due at the time of your purchase. The rest of the payments are billed to a debit or credit card until your purchase is paid in full.

Buy Now, Pay Later spreads out payments on purchases you can’t necessarily afford at the moment. This may sound like a traditional loan, but there are differences we will explain here. These loans can be interest-free, as long as you keep up with your payments and pay them in full each month. The difference between this and a traditional credit card is a card charges you interest every month you carry a balance. There are exceptions to this rule like zero percent interest credit cards. The key with this type of short-term loan is to understand, from the beginning, if they will work for your larger financial picture.

Buy Now Pay Later can become an issue if not managed correctly. While it is perceived as positive by many, it could add to your financial stress, instead of providing temporary relief from credit card debt. Remember, although payments are pushed down the road, they are still bills you are obligated to pay.

Why is Buy Now Pay Later Attractive?

The pandemic affected everyone and everything in our lives, including shifting how many people make purchases. A 2020 survey showed one of the lasting effects of the pandemic is that it accelerated the shift towards a more digital world and triggered changes in online shopping. Those changes meant people found new ways to shop and retailers introduced new ways to pay for purchases.

The plans often don’t charge interest and can offer easier approval, when compared to traditional credit cards or lines of credit. Also, unlike traditional cards, there is no hard credit pull to qualify for a Buy Now Pay Later, although there may be a soft credit inquiry. In the mind of some consumers, Buy Now Pay Later plans are considered a way to manage credit card debt. As with every debt you have, knowledge and responsibility are key. Stay within your budget and stick to your financial plan.

Even now, when shopping online, you may see Buy Now Pay Later as an option for payment. It seems easy enough. You can complete your purchase right away, often without interest.

On the surface, Buy Now Pay Later offers predictable installment payments over an extended time period, usually between three and 39 months. Increasingly, Buy Now Pay Later has expanded into brick-and-mortar stores as well. This loan can give you access to more of what you want, but it can be deceiving. Depending on the service used for a Buy Now Pay Later provider, loan payments may be reported to credit bureaus. If you are already working on your overall financial health, an added item affecting your credit could impact your household finances.

What Are the Pitfalls of Buy Now Pay Later?

Consumers may take advantage of a Buy Now Pay Later plan, without fully considering the impact on their budget and how they are managing debt. Have you considered the potential problems with Buy Now Pay Later as well as the perceived advantages?

People can sometimes spend more and increase their impulse buying when using Buy Now Pay Later plans. They are also less likely to comparison shop for the best terms, or take a hard look at the deal. Is there a fixed fee? Does the initial interest rate last the entire length of the loan?

Another thing to consider is that Buy Now Pay Later purchases may not qualify for the same fraud or warranty protections as with credit card purchases. In a Credit Karma/Qualtrics survey, 38% of respondents said they missed at least one payment and 72% said they saw a decrease in their credit score. Missed or late payments can mean fees and possible damage to your credit, depending on terms from the provider. Be careful. A Buy Now Pay Later can become a slippery slope, without discipline. The future of your overall money management for your future depends on it.