Buy now pay later sites do exactly as their name says – they allow you to purchase something with only a portion of the total price as an installment. You won’t need to make the entire payment at the time of the purchase. Depending on the product and the price, this arrangement may vary from a sale credit of 30 days to up to 12 months, or even longer. But are the benefits of delaying payment worth it? How does Buy Now Pay Later sites affect your debt?
How They Work
When you sign up for a Buy Now Pay Later site (BNPL), you include a debit card or credit card for installment payments. You’ll see a schedule of what your payment plan will look like. Usually, these offers also come with a delayed period. If you make the entire payment within that period, there is no interest or additional surcharge. These delay periods are meant to be interest-free. However, if you make payments beyond the deadlines, the prices may rise significantly. Alternatively, a better approach is to make payments for several months without even incurring a cent in interest.
Lots of shops now offer buy now pay later options. The most popular ones include:
Buy Now Pay Later Myths
Negatively Impacts Credit Score
This argument does not hold water because the only thing that negatively impacts credit score is being late on payments or missing them altogether. Late payments on these accounts are just as bad as late payments on traditional loans. However, if you make the pre-decided installments on time, your credit score is not impacted. On the other hand, these timely payments might not be very useful in pushing up the credit score either. So there is no loss but probably not as much gain either, from prompt payments as it is on conventional loans.
Increases Credit Card Debt
While this argument is not entirely false, there is little direct relation of credit card debt to the buy now pay later services. When a customer chooses to avail such a service, they can either set up their account with a debit card or a credit card. If you make payments through a debit card then there is no debt accrued. But if you make payments through a credit card, and your card payments are not made on time, then debt certainly starts to build up. Either way, if you pay on time, whether to the seller offering buy now pay later service or to the credit card company, there will be little debt build-up.
Fees and Fines to Customers
This argument is also untrue because of two primary reasons. First, there are no hidden costs. The late fees that are charged on delayed payments are not only capped but also disclosed upfront at the time of the purchase. Second, the actual reasons why sellers choose to offer this option is not to make extra money through concealed means, but to offer more affordability to customers and thereby increasing sales. With buy now pay later, the customer base of shops grow and they make higher sales. Now customers with no credit cards or those that cannot afford to make lump-sum payments can now make purchases.
Sends Customers into a Buying Frenzy
Credit cards, discount coupons for further purchases, and likewise, buy now pay later services, are meant to make the products more affordable for customers and to improve customer experience. Constricting the purchasing power of the consumers or putting in barriers to shopping is not the responsibility of any seller or e-commerce platform. Therefore, while there is some truth to this statement as this service has indeed proven to improve sales for almost all products, it is not fair to attribute the negative side of it all on the service. Buying behavior and credit habits are customers’ responsibility and the availability of a facility should not be misused.
Making the Most of Buy Now Pay Later Services
A little caution and careful analysis of the product, prices, and late payments at the time of the purchase can go a long way. Customers choosing to go through this payment option should carefully compare the general prices of the products in concern, check their own credit availability and ability to make timely payments, and if possible, choose to open an account on a debit card instead of a credit card. Being smart about credit behavior will translate into being smart about shopping behavior and therefore make buy now pay later an excellent facility instead of a debt risk.
While more and more people continue to use this payment option, the apprehensions around higher costs and potential losses also keeps many people wary of it. The truth is that a buy now pay later option in itself does not harm the buyers. The negative result comes from bad credit behavior or poor spending habits. It doesn’t really matter how the transaction is carried out. Most important is that you are mindful of your purchases and that you make payments on time. This is how you will succeed in becoming debt-free.