Buy Now, Pay Later: The Pros and Cons

buy now pay laterHave you heard of BNPL programs? Short for Buy Now, Pay Later, BNPL programs have been around for a while, but they have increased in popularity as online purchasing has become more common.  It isn’t hard to see the appeal of these plans that allow you to take possession of a purchase while postponing the payment.  That sounds good! However, like most things, there are important downsides that you might be tempted to ignore.  This article will summarize both the positive and negative aspects of using a buy now pay later plan.

The Advantages

The most obvious advantage of BNPL programs is that they enable purchasers to get and use necessities even if the funds to buy them are not immediately available.  These programs allow users to break up payments over a few months rather than paying in one lump sum, which can ease cash flow. These programs can also be helpful to purchasers who don’t have good credit or for other reasons don’t qualify for more traditional financing since BNPL programs typically do not require a qualification process or credit score check.

The Potential Problems

While these programs sound good, they are not without some potential pitfalls.  The consumer is responsible for making payments to the plan on time, and if a payment is missed there are often late fees and possibly a change in the interest on the rest of the balance.  All this is covered in the fine print, but consumers often skip over those details.  Since BNPL plans are so easy to access and to qualify for, they also make it easier to buy on impulse.  Using these kinds of plans for wants rather than needs can tempt consumers to overspend beyond what their income can support.

Other Options

We would caution anyone considering a BNPL program to carefully evaluate the decision within the full financial context of their situation.  Helpful questions include:

  • Is the purchase necessary?
  • Could the purchase wait?
  • What effect will the monthly payments have on your budget?
  • How will this purchase affect your future buying power and financial flexibility?
  • Are there better ways to finance this purchase?

There are other more traditional avenues for borrowing, such as short-term loans, credit cards, and home equity lines of credit.  While these carry an interest rate, consumers may find that these are better choices in the long run, partly because they allow purchases to build a payment history and improve credit score.  Another smart option is to wait and save money toward your purchase.  Putting money away each month for a few months can enable you to buy the item for cash.

In short, consumers need to know that BNPL has both benefits and potential disadvantages.  If you need help in evaluating your financing options, come in and talk with one of our experienced lenders.  We can help you look at your options and find the one that works for you.

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