Buy Now, Pay Later: A Budget-Friendly Approach: Mastering Your Shopping

Let’s say you’re ready to start purchasing gifts for your friends and family but don’t want to pay for everything upfront. Based on your budget, you think paying in installments is a better option than make monthly payments on your credit card. There is a plan that may work for you – buy now, pay later, or BNPL.

Although it’s a short-term, interest-free option for retail purchases and offers other benefits, the service still comes with its risks. Before applying, you should know how the plans work and if it is worth your money.

How Does BNPL Work?

The option to use BNPL is available when shopping online or on a mobile app at participating retailers. Acting as a personal loan and alternative to a credit card, it allows you to immediately make a purchase and pay for it with a series of equal payments.

A third-party company such as PayPal, Affirm, Afterpay, and Klarna offer financing options if you choose to use payment installments. The payment agreement isn’t through the retailers, but with one of these outside companies.

This is usually within four interest-free biweekly payments and require first payment at checkout. For instance, if your purchase is $200, you’ll pay $50 at checkout and then three payments of $50 every two weeks. After the first payment, your item will be shipped. Your remaining payments can be automatically deducted from your debit card, credit card or banking account.

Should You Use BNPL?

Before considering using a BNPL plan for your next purchase, think about whether it’s worth applying for. Some advantages of BNPL include:

• The ability to split your payments for expensive items. You don’t have to worry about a lump-sum payment or interest rates.
• Easy qualification without a hard credit pull inquiry. Most services will do a soft credit pull that won’t affect your credit score before approving or denying your application.
• Cash flow management with a plan that fits your budget.
• Simple and easy-to-understand terms.

Some risks of using the financing option may include:

• Varying terms depending on the service. Some plans may let you borrow a larger amount to pay back over a longer term, but it requires a hard credit inquiry, charging interest, and reporting your payment history to the credit bureaus. Make sure you read the complete details before applying for BNPL.
• Fixed fees added to your monthly payments. This may include late fees or interest on your unpaid balance, or a convenience fee for using your debit or credit card for payments. If you stop making payments, BNPL services can report you to the credit bureaus and your credit score will take a hit.
• You could spend more than what you can afford to pay back.
• Credit history building. Using most BNPL services generally won’t help build credit. Make sure to check the terms for complete details. Some services are starting to report certain loan products such as larger or longer-term plans. These will affect your credit.
• Bank fees. If your bank account is low on the day of an automatic payment, you may incur insufficient or overdraft fees from your bank.
• Difficulty with item returns. If your return is approved, the retailer will send funds to the BNPL service. You then receive the money from the lender. However, while waiting for your cash or store credit, you may still need to make payments as per the terms.

To apply, you are required to provide information such as your name, email address, and date of birth. You also must:

• Be at least 18 years of age
• Have a mobile phone number
• Have a debit card, credit card, or bank account to make payments

Still Unsure About BNPL?

These BNPL services may leave you with more questions. Make sure to research the services available and review all terms before applying. The Consumer Finance Protection Bureau is continuing to educate consumers on the benefits and risks of these services. According to the CFPB, BNPL lenders are similar to credit card providers and must allow consumers to dispute charges and demand refunds after a product return.

If you’re still unsure if this option is right for you, check out any BNPL details from the CFPB and any frequently asked questions provided by credit bureaus such as Experian. Information about BNPL providers may continue to change because of any future rulings by the CFPB.

Understanding Your Finances

Before you consider applying for a BNPL plan, check out our Learning Center to help you understand your financial goals big and small. Our interactive personal finance calculators are just one of our tools for learning to manage your money such as how long it will take to pay off a loan or credit card. The Financial Education Center will give you the critical knowledge and skills you need to make the financial decisions that are best for you. The interactive modules include credit reports and scores, credit cards, preventing overdraft fees, and more.

Buy Now Pay Later Not The Right Path?

Adirondack Bank offers loan options to cover any purchases if you need financial assistance. Check out our home equity and consumer loan options to see what may work best for you. Maybe a savings account or Holiday Club is the best way to pay for your purchases instead of a loan. Visit any branch or on our website for complete details of our products and services that may suit your needs.

The information in this article was obtained from various sources not associated with Adirondack Bank. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. Adirondack Bank is not responsible for, and does not endorse or approve, either implicitly or explicitly, the information provided or the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. Adirondack Bank makes no guarantees of results from use of this information.