Pros and Cons of the ‘Buy-Now-Pay-Later’ Trend

The holiday season is upon us! So, I thought this would be a great time to dive in and talk about the Buy-Now-Pay-Later trend. So, I decided to do my own research AND used it for about three purchases with three different companies.

Buy-now-pay-later program is rapidly growing as a preferred form of payment, where it provides short term financing for purchases with no fees and interest charges. (ALWAYS A HUGE PLUS). For example, if you were to place an order for $1000, you will make four payments of $250 biweekly instead of paying the total upfront.

Let’s talk about how this works. The companies allow consumers to pay for purchases in installments over several weeks or months with no interest. Payments are usually automatically withdrawn from your account every two weeks. After reading some of the fine prints, I wondered if it is really a great program and if people are reading the fine prints. I also wondered how do these companies make money and what is the catch? I don’t know, I always ask myself what’s in it for the company to make money so convenient and accessible to me and you! How do THEY make money? Well, they charge the stores a merchant transaction fee, they charge late fees and/or interests when consumers miss payments.

There are two different categories with the Buy-now-pay-later payments:

Point-of-sale such as Paypal Credit, Affirm:

Offered towards larger purchases over a longer period time
Require credit checks
Charge interest

Pay-in-four such as Paypal Pay in Four, Klarna, Afterpay:

Charge no interest
Require about a 25% deposit
Soft credit pull (does not affect your credit)

Now that we went over the terms and technicalities, we will go over how to avoid pitfalls and use these plans effectively.

1. BE SURE TO READ THE FINE PRINTS AND TRULY UNDERSTAND HOW YOUR PARTICULAR PLAN WORKS.

You usually find the terms on the companies’ websites (FAQ Page), not when you are making the purchases
Check their late payment fees and what happens if you make or miss a payment
Check if they report negative activities to the credit bureaus which will in fact affect your credit report

2. DO NOT SPLURGE. DO NOT PURCHASE ITEMS THAT YOU DO NOT NEED.

The low installment payments may tempt you to spend more than anticipated
Check your budget PRIOR to checkout
If you see an item that you were not planning on purchasing prior to seeing it on the site, leave it in your cart for at least 24 hours

3. TRACK YOUR PAYMENTS

Add the new biweekly payments to your budget (I cannot stress that enough)
Schedule your payments through your bank card instead of a credit card (if allowed)
If you miss a payment, reach out to their support team, and ask them to waive any late fees as a courtesy.

These buy-now-pay-later programs are being pushed. So, what are some pros and cons?

PROS