Buy Now, Pay Later: A Closer Look

As the cost of living continues to rise, many consumers are turning to Buy Now, Pay Later (BNPL) programs, such as PayBright, Afterpay, Sezzle, Klarna, Uplift, or Affirm as a way to manage their expenses. These thrid party companies partner with retailers to encourage customers to spend more. BNPL programs allow you to purchase items immediately and pay for them in installments, often interest-free. You will often seen BNPL options advertised along with the full price of the product. (e.g. "Pay $100 now, or as little as $5/month.")

How Does BNPL Work?

There are two primary types of BNPL plans:

1. Equal Payment Plans: You make regular payments over a fixed period until the balance is paid off.
2. Deferred Payment Plans: You pay the full amount by a specific date, but there are no fixed installment amounts.

Before You Dive In

An interest free BNPL plan is almost certainly better than not paying off your credit card balance in full and paying approximately 10% - 30% in credit card interest charges. However, these plans are not without their caveats. Before opting for a BNPL plan, carefully consider the following:

• Read the Fine Print: Understand the terms and conditions, including fees, interest rates, and late payment penalties.
• Down Payments: Many BNPL plans require a down payment to initiate the purchase.
• Impact on Credit Score: Missing payments can negatively affect your credit score.
• Overspending Risk: The convenience of BNPL can lead to impulse purchases, overspending, and a false sense of affordability. 
• Administrative Hassle: Do you want to fill out paperwork, undergo a credit check, and have small payments dripping out of your bank account for months on end? 

Alternatives to BNPL

While BNPL can be a convenient option, it's essential to weigh your choices. Consider these alternatives:

• Saving Up: If possible, save up for the purchase to avoid any additional costs.
• Traditional Loans: For larger purchases, explore traditional loan options from banks or credit unions.
• Credit Cards: Use a credit card with a rewards program and pay off the balance in full each month to avoid interest charges.

Key Considerations

• Budget Wisely: Ensure the BNPL payments fit within your monthly budget.
• Pay on Time: Prioritize timely payments to avoid fees and penalties. You can arrange for automatic deductions from your debit or credit card, but verify that sufficient funds are available before each payment is due to avoid overdraft and interest charges.
• Use Responsibly: Avoid using BNPL for impulse purchases or to exceed your budget.

In Conclusion

BNPL can be a helpful tool for managing expenses, but it's crucial to use it responsibly. By understanding the terms, potential risks, and alternative options, you can make informed decisions that align with your financial goals.

If you need help managing spending and expenses, The ABCU team of advisors is here to help. Reach out for more advice and solutions. Call us at: 1-888-929-7511.