Why You Should Reconsider Using Buy Now, Pay Later Loans
If you have an ongoing subscription service, the easiest way to pay is to set up an automatic payment plan. If you’re worried about late fees and interest, autopay is one way to avoid those penalties.
While you may be tempted to stream automatic payment plans, there are some recurring charges that are best paid for as you go. For example, an annual fee may cost less per month than a monthly fee, but it could hit you hard when that annual payment comes due. Tap or click here for five bills you should never put on autopay.
Buy now, pay later loans allow you to divide the cost of purchases into equal payments and then pay them back on a schedule. While you generally don’t have to deal with credit checks and traditional loan agreements, these payment plans do have some downsides.
The good and the bad
In December, we flagged the potential dangers of “buy now, pay later” services. You will often see packages consisting of four weekly, bi-weekly or monthly installments with a minimum purchase price.
These plans help alleviate the financial stress of paying for a product all at once. That sounds great, but one problem is the temptation to buy more than you can afford. Smaller payout increments can add up faster than you think.
You also have to watch out for hidden fees. Although you may not pay interest on the first payment, you may need to do so later. A fixed cost sounds good, but the price may be higher at the end of the plan than it would have been if you had purchased the product in one payment.
Fees and increases can skyrocket up to 30%, and late payments can have a huge impact on your wallet.
The BNPL boom
There is a new development in the BNPL world. These transactions now appear on your credit report. In December, Equifax announced that it would include BNPL payment information on credit reports beginning in the first quarter of 2022.
In January, Experian announced its upcoming Buy Now Pay Later Bureau, which will debut this spring. In February, Transunion announced point-of-sale solutions that allow consumers to add BNPL to their credit reports.
These companies tout the benefits of having BNPL included in your credit history. For one thing, it can help establish credit. Paying off these loans on time will benefit young homebuyers and people with bad credit, as it provides credit-building opportunities they usually couldn’t afford.
Some popular BNPL services include:
- To affirm
- PayPal Pay in 4
- Separate it
Amazon has its own BNPL system through Affirm. Tap or click here to learn more.
not so fast
As with any payment, missing a BNPL will impact your credit score if it is on your report. You also don’t get the same protections from BNPL lenders that you might get from more traditional institutions.
Our advice is: don’t use these services for luxury items or things you don’t need.
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