Why buy now pay later could be costing you more than you think

Over the past few years, buy now pay later plans, also known as BNPL, have gained popularity and have become a convenient way to shop. These plans offer an alternative to traditional payment methods allowing shoppers to make an immediate purchase while breaking payments up into instalments that are paid over time. While convenient, buy now pay later can cause more financial strain for those struggling with money. It’s essential to understand the consequences of buying now and paying later.   

Immediate gratification  

One of the main attractions of buy now pay later is instant gratification: you can buy an item without having to pay the full price up front. This instant satisfaction can lead to impulse buying with no immediate financial impact, and a snowball effect leading to overwhelming debt.  

Living beyond your means 

It’s important to recognize that buy now pay later plans make it easy to live beyond your means as you’re opting to spend money you might not have. Smaller payments spread out over time can also create the illusion of affordability, but other expenses that come up during your payment plan can make those instalments difficult to manage. Essentially if you can’t afford the full cost of the item up front, it’s worth reconsidering if you should be purchasing it. When you do use BNPL, make sure all payments are accounted for in your budget.  

Accumulating debt  

For some, buy now pay later plans seem like a hassle-free way to shop. For others it can lead to a cycle of debt. With multiple payments on various purchases, shoppers can find themselves juggling due dates and maybe even struggling to keep up. Late payments on these instalments can lead to additional fees and interest, which can add financial burden.   

Additional fees: the fine print  

Although buy now pay later services claim to be interest free, in some cases the fine print includes fees and interest rates for those who miss payments. Make sure to understand the terms and conditions prior to signing on the dotted line so you can plan for payment due dates and any consequences of missing payments.  

Credit score  

Buy now pay later transactions may impact your credit score. Some, not all, will report late payments to credit bureaus which have the potential to lower your credit score. A lower credit score can affect your ability to secure better terms for future credit, including mortgages, loans or credit cards. Buy now pay later plans will often do a credit check prior to approving you for their services.  It’s important to understand if the credit check will be a “soft” or “hard” check. A hard credit check will show up on your credit report and has the potential to lower your overall credit score. Multiple reviews of your credit report may be a red flag to potential lenders.  

Despite the negative impacts, there are benefits to using buy now pay later:

• Immediate access to goods: This might appeal to those who do not have funds to make the purchase. This could be useful for larger purchases that otherwise may have taken place on credit cards which would have the potential to accumulate fees and interest each month.  
• Affordability:  This option allows shoppers to breakdown larger purchases into smaller manageable payments. As long as you are able to make the payment on time this can be a strong option that provides flexibility and the ability to budget.  
• Interest free:  As long as the payment is made within the set time frame there should be no interest charged.  
• Convenient shopping: Buy now pay later streamlines the checkout process making it simple for shoppers.  
• Exclusive deals:  Some buy now pay later partners will provide retailers with exclusive deals or discounts. This added incentive might entice consumers to choose buy now pay later options.
• Payment and fees: These services usually allow flexibility when choosing repayment. Depending on the agreement users have the option to select shorter or longer terms based on their needs. For users making payments on time this can be a cost effective way to manage purchases without additional fees .   
• Credit not needed: Buy now pay later allows shoppers to ditch the plastic and still participate in online shopping and enjoy benefits of deferred payment.  

Breaking the cycle of debt  

With the ease of buy now pay later plans, you may find yourself prone to impulse buying, and spend more than your budget allows. This overspending, coupled with the lack of an immediate financial consequence, can lead to financial instability and over-dependency on debt. Breaking free from any debt cycle, including buy now pay later, requires you to adjust your spending habits and stick to a budget.  

While buy now pay later offers a convenient payment alternative, it’s important for shoppers to approach it with caution and awareness. The consequences of buy now pay later can extend beyond immediate gratification and can cause a long-term strain on finances. From accumulating debt and hidden fees to potential impact on credit scores, the buy now pay later trend is one we suggest researching before committing.