Buy Now Pay Later financing strikes a middle ground between saving and borrowing. What’s wrong with that? Well, it changes your relationship with money.
Before BNPL, You Had Two Options to Pay
Traditionally, when people can’t afford something, they have two options:
- Wait to save up for it out of pocket, or
- Borrow money to pay right away.
Waiting is generally the best policy when it comes to discretionary spending and big purchases. But in emergencies, you may have no time to save before you’re expected to handle a sudden repair or medical expense. In time-sensitive situations, applying for a personal loan or line of credit might be the only viable option.
People who scope out their options online will appreciate the gravitas of this financial decision, as many online lenders promote responsible borrowing.
An online platform like Fora, for example, encourages borrowers to take out only what they need in an emergency. They explain why applying for Fora Credit is a big deal, complete with the costs associated, so you can understand the role a line of credit plays in your finances.
BNPL Provides a Convenient Shortcut
The Buy Now, Pay Later industry markets their financing plans as a quick and easy way to sidestep the usual choice from above; you won’t have to borrow in the traditional sense, and you can pay right away without saving for it.
At first glance, this is a win-win. But the average BNPL plan differs greatly in marketing than the typical personal loan.
For one thing, BNPL comes to you. Whereas borrowers have to seek out lenders online, shoppers are offered BNPL financing at every digital checkout. This delivery method can make using BNPL a spur-of-the-moment decision, rather than a deliberate one like when someone takes out a line of credit. You might not really think about how paying several installments affects your budget in the future.
What Do You Have to Look Out for When Using BNPL?
When used carefully, BNPL might be a helpful option when you’re short on funds. But you have to remember that by entering a BNPL plan, you are guaranteeing you will have enough money in the future to pay your installments.
This guarantee is easier to make with certainty if you follow these two tips:
1. Don’t Stack BNPL Plans
Stacking involves taking out more than one BNPL plan to cover multiple purchases. There’s nothing inherently wrong with this option, but it does put pressure on your budget. You can easily overlook how many of these plans you have. If you don’t pay attention, you might not be able to afford their collective cost — even though you can cover their individual payments.
The Atlantic reveals that BNPL users spend around $60 more each week. Meanwhile, many BNPL borrowers are more likely to be delinquent, even if their credit was in good standing when they first applied.
2. Always Update Your Budget
You need to shelter the cash for installments to ensure you don’t miss a due date. Otherwise, you can face serious penalties and late fines.
Update your budget to ensure you don’t accidentally spend this cash on other things. Stranger things have happened — since you don’t usually have a BNPL payment in your budget, you can forget this payment exists until it’s too late. A budget earmarks this money, so it will be available when it’s due.
Better yet, always check this budget before you apply to ensure you can handle this responsible. Start treating these plans like you would a loan or line of credit.