Credello: Risks and Rewards of Using Buy Now Pay Later Services

Holiday shopping season is upon us. The desire to use credit cards has been somewhat curbed by those high interest rates, but “buy now, pay later” (BNPL) deals have a bit more appeal. With sales numbers down last year due to the pandemic, many merchants are putting BNPL offers out there. Are they a good thing for consumers or a bad idea? 
You won’t find BNPL as a recommendation in any books about how to get out of debt. Regardless of interest rate, they’re still adding a new financial obligation to the consumer’s liability list. In this article, we’ll discuss the risks and rewards of doing that. Read this carefully before you decide to buy something without paying for it in the moment.  
Risks of Buy Now Pay Later
On paper, BNPL looks like a great deal. The consumer either pays a small percentage of the purchase price or nothing at all and gets to walk away with the item. Of course, the payments will be debited from their account later, but who thinks about that when holiday shopping? That impulse-driven behavior is one of the inherent risks in this option. 
As for that 0% interest rate on the date of sale, read the paperwork carefully. It may not be guaranteed for the life of the loan. In some cases, the interest rate before you pay off the entire balance could exceed your credit card interest rate. You also won’t be able to collect any credit card rewards points because you opted not to use them.  
 Another risk to be conscious of is the danger of missing payments or getting charged overdraft fees on your bank account because you forgot about a scheduled payment. If you’re planning on using BNPL this holiday season, check your budget first to determine how much you can afford in extra monthly payments. Failing to do that is a common trap consumers fall into.  
 Rewards of Buy Now Pay Later
It’s not all bad. There are some distinct advantages to buy now pay later. The most obvious is that you won’t need to have the cash up front or credit to cover the purchase. Furniture stores learned the value of this decades ago. Many of them will allow you to pick out your furniture, have it delivered to your home, and start billing you for it later. 
 Zero percent or low interest rates, provided they are locked in for the life of the loan, are better than paying interest on credit card purchases. The 2021 median interest rate on credit cards in the U.S. is currently 19.49%. Avoiding that this holiday season should be a priority. Lower interest BNPL is an alternative that’s hard to pass up.    
 If you’re worried about credit checks, most BNPL deals don’t affect your credit report. Retailers usually do a soft inquiry, which doesn’t take points off your credit score. They also don’t typically require high credit scores to approve purchases. Merchants offer BNPL because they want to boost their sales numbers, so they tend to be more lenient about credit scores.  
The Bottom Line: Don’t Buy it if You can’t Afford It 
 This is simple common sense. Don’t buy it if you can’t afford it. That’s regardless of whether you choose BNPL or credit cards. Check your budget before going shopping and make a decision about how much you’re willing and able to take on for monthly payments if you choose to buy on credit. Knowing what those numbers are makes shopping a more joyous experience.  
Source: Credello