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3 Reasons to Avoid Buy-Now-Pay-Later Programs

By Lucas Counts

While strolling through the mall, out of the corner of your eye you spot a sweater that you know would fit perfectly. The problem: it’s $30 dollars outside of your budget. But never fear, because now there’s an innovative way to buy stuff from your favorite corporations before you have the funds necessary. 

That sounds like a score, right? Not quite.

With no impact on your credit score when you apply and no interest fees, buy-now-pay-later (BNPL) programs offered by companies such as PayPal, Apple, and Addi, to name a few, sound a lot less like credit and a lot more like an accommodation offered selflessly by the corporate tycoons of the world who want to give you the option to purchase services you cannot afford. 

Don’t be fooled because using BNPL services can have serious repercussions if you fall behind on payments or use it in excess.

1. Extra Charges

Most (if not all) BNPL plans charge interest, and you may be on the hook for late fees when you miss a payment. Either way, you will be paying interest on the item you bought with BNPL. Let’s say the sweater you bought costs $85 and the interest per month on your BNPL plan is 6%. If you paid your balance for the sweater at the end of the month, you’d be paying out $92. But if you kept falling behind on your payment, the interest would continue to accrue, and you would be paying a lot more for your sweater than it was at face value. 

If you instead wait until you have the funds to make a purchase (that is a want and not a need), you end up paying less money for the same exact product. 

2. Potential Credit Damage Outside Your Control

When you utilize these programs, you forgo the chance to build positive credit if the BNPL company you purchase through doesn’t report on-time payments to credit bureaus.

In the same way, if your BNPL program reports late payments to credit bureaus, this can ding your credit score big time and prevent you from renting certain apartments, pulling out a secured business loan, paying less on your car insurance, and even from getting a mortgage from a bank. When you use BNPL payment plans, you risk negatively affecting what your future can look like– where you can live, what you can borrow, and even the jobs you can get. 

3. Temptation to Overspend

A LendingTree survey of American consumers from March of 2021 found that around ⅔ of BNPL shoppers spend more than they would have without BNPL. BNPL programs make it harder for many to live within their means and easier for big companies ranging from the grocery outlet to your cell phone provider to make big profits they wouldn’t otherwise make. This raises an important question: who really benefits from using BNPL? 

Here’s a hint: it isn’t you.

So what’s the solution? If I really want something I can’t afford to buy right now, how can I get it without using BNPL? Meet planning.

If you want to reach a financial goal such as buying your sweater, be intentional about saving money so that you can make that purchase. Cutting out monthly expenses such as streaming services or magazine subscriptions that you don’t use so that you can allocate that money towards items and services you really value like the sweater is also a great place to start. When you want to purchase a product that you desire, that’s great, just pay for it responsibly so a blessing you wanted doesn’t become a curse. 

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