You’ve been eyeing something for months and hoping it would go up on sale, but so far, no dice. And you probably don’t have the cash to buy it right away, but you really need it. In that case, look no further than the “Buy Now, Pay Later” option. A type of financing payment plan that allows you to purchase items and pay them within 12 months with no interest, Buy Now, Pay Later is rising in popularity among consumers. And it’s easy to see why – these payment plans are designed to make your shopping experience stress-free and more affordable without worrying about accumulating interest charges. For example, a credit card charges an annual fee, and most loans are attached to an interest rate. Therefore, you end up paying far more than you need to.
On the other hand, Buy-Now, Pay-Later plans help you keep your credit utilization low, improving your credit score. If you use this option responsibly, it can even help you build your credit history. If you qualify for a Buy-Now, Pay-Later plan, it’s easy to overspend and go beyond your financial limits. This is why it’s important to know how to leverage the advantages of this payment scheme to grab the best deals.
Make Your Payments On Time
Since Buy Now, Pay Later plans are a form of credit, missing payments can sometimes harm your credit score. While payment history is not reported to credit bureaus in this payment plan, missing a payment can have negative ripple effects, depending on the lender.
Late payments can lead to additional fees or a frozen account that prevents you from making further purchases. Eventually, the debt will be charged off and turned over to a debt collector. This action may be reported to credit bureaus, severely impacting your credit history.
If you know that you will struggle with making your payments on time, some lenders will allow changes to payment due dates. Having too many Buy Now, Pay Later plans at once is not advisable. The only way to stay organized is by keeping them under a manageable threshold. According to a report by the Consumer Financial Protection Bureau, those who have opened personal loans, auto loans, credit cards, mortgages, or student loans in addition to their Buy Now, Pay Later plans were twice as likely to be negligent on at least one of those loans for 30 days or longer.
Carefully Consider Payment Methods
Many Buy Now, Pay Later lenders permit installments to be settled with a credit card, debit card, or other options. So make sure you choose your payment method very carefully based on the purchase amount, financial situation, and goals.
For example, if there is insufficient money to cover the payment, automatic payments with a debit card can lead to overdrafts or insufficient fund fees. This issue can be avoided when paying with a credit card, but you must remember that carrying a balance from the Buy Now, Pay Later plan for many months would mean yielding interest fees. Moreover, a big purchase can impact the credit utilization score if it uses over 30% of the available credit.
Don’t Take On Too Many Plans At The Same Time
With Buy Now, Pay Later plans, lenders might not report ongoing payments to the main credit bureaus, so they won’t have visibility into how many plans you hold with various companies. Therefore, it is easier to become overextended. If you have taken on multiple Buy Now, Pay Later plans simultaneously, you must stay on top of the terms and due dates. Use budgeting apps, a calendar, or a notebook to stay organized and on track with your payback plan.
Understand The Terms And Conditions
Sometimes, in the excitement of buying something and checking out quickly, many consumers accept a Buy Now, Pay Later plan without even reading through the terms of the loan. Remember, the terms are not the same for all lenders, so you may have to spend some time tracking it down from the lender’s website and thoroughly understanding what you can expect from the plan and if there are any potential fees included. Doing so ensures you have no unwanted surprises along the way.
Final Thoughts
With interest-free monthly payments, Buy Now, Pay Later plans are a convenient way to make purchases without breaking the bank. However, as with any payment plan, make sure that you take some time to review your budget and analyze whether it’s worth the spend. Since it falls under the category of loans, don’t fall into the trap of relying on this plan to cover your necessities – it must only be an option of last resort if you need to make a serious purchase.
Moreover, many retailers offer special discounts and deals for consumers who use Buy Now, Pay Later services, making it an excellent option for those who want to save money while shopping.
