“Buy now, pay later,” as the name implies, allows you to make a purchase and receive it right away, but pay for it later, usually in a series of installments.
Though this form of payment plan has been around for a while, it gained a lot of traction during the pandemic as more people turned to online purchasing.
Most big shops now offer a buy now pay later option, but whether you should take advantage of it depends on the plan and your financial condition.
What does it mean to “purchase now, pay later”?
A buy now, pay later loan, sometimes known as a BNPL loan, is a sort of installment loan. It breaks down your purchase into several equal installments, the first of which is payable at checkout. Until your purchase is paid in full, the remaining payments are invoiced to your debit or credit card. These plans may include interest and late penalties, though depending on the supplier, some may not.
When you shop online, you’ll often find BNPL payment plans, and many of them are also available in stores.
How does the buy-now-pay-later scheme work?
If you’re interested, you’ll fill out a brief application on the checkout page. Your name, address, date of birth, phone number, and Social Security number may be requested. You’ll also specify a method of payment. The BNPL provider may then do a soft credit check, which will not effect your credit score, and approve or decline your application in seconds.
Is it a good idea to buy now and pay later?
When considering whether or not to use a BNPL payment plan, there are various factors to consider. Use BNPL solely for required costs, such as a mattress for your apartment or a computer for school, according to NerdWallet. Even though the plan appears to be straightforward and low-cost, you’re still taking on debt, and going into debt for a non-essential item is rarely a wise decision.
You should also opt for a BNPL plan with no or low interest. This will make it easier for you to repay the loan by lowering your monthly payments.
For some buyers, using credit cards as a form of payment may be a better financial option. Most credit cards not only give incentives or cash back, but they also disclose on-time payments to credit agencies, which is something that not all BNPL companies do. On-time payment history will help you improve your credit score and open the door to more affordable financing alternatives in the future.
Most credit cards, unlike BNPL, incur interest, so you’ll want to pay off your debt each month.
Credit cards are also strictly regulated, which means that extra consumer protections are in place, such as greater cost transparency and tougher screening requirements, both of which can prevent people from going over their credit limits.
The Bottom Line
Purchase now and pay later Consumers can use finance agreements to pay for items over time without incurring interest charges. Even if you’ve been turned down for other loans owing to a poor CIBIL score, you may be eligible for this sort of financing. Credit card debt is not added to by BNPL loans, but personal loan debt is. They don’t normally have an impact on your credit score because they’re usually too short to be recorded to the credit agencies.
It might also be challenging to receive the goods purchased through BNPL. Of course, you should get your money back—but it may take a while for the retailer to notify the BNPL lender of the reimbursement. If you don’t, the payment may be declared late or absent, resulting in fines and a negative impact on your credit score.