You’ve probably come across an opportunity to sign up for a Buy Now, Pay Later plan, or BNPL plan, regardless of whether you shop primarily online or in stores. Instead of paying for purchases all at once, BNPL plans let you pay for them over time.
Consider the purchase of a $200 kitchen appliance. A BNPL plan will allow you to pay for that purchase over what is typically a three-month period instead because it may be difficult for you to cover it all at once. If you use one of these plans instead of putting your purchase on a credit card, you won’t have to pay interest as long as you stick to your installment payment schedule. If you use a credit card, paying off a balance over the course of three months will result in the payment of some interest on your purchases.
However, while BNPL plans may be convenient, not everyone should use them.
Additionally, you might want to avoid them if you already owe money.
The Consumer Financial Protection Bureau found that borrowers of BNPL plans used a significantly higher number of other loan products than those who were not signed up for BNPL plans. This indicates that BNPL plans and existing debt do not work well together. However, the fact that only 7% of non-borrowers had a reported delinquency in another personal loan or credit account compared to 18% of those with BNPL plans is truly alarming.
However, this does not imply that enrolling in BNPL plans causes borrowers to default on other financial obligations. Instead, it’s possible that signing up for a BNPL plan will be easier for people who are used to or accustomed to having debt. However, these plans are actually not the best option if you are already in debt.
The fact that BNPL plans give you more financial freedom to pay for your purchases is a great benefit. However, if you already have debt, you probably shouldn’t buy things that aren’t necessary until the balance on your loan or credit card is reduced.
Naturally, an emergency purchase can be covered by a BNPL plan,
which is a little different. However, it stands to reason that you may also fall behind on payments to your BNPL plan if you are already having trouble meeting your existing debt obligations. Additionally, if that occurs, you run the risk of having your credit score harmed in addition to incurring additional costs and interest.
Be careful when signing up for BNPL plans because they often force customers to buy things they don’t need or can’t afford. Although there are exceptions to this generalization, most financially stable individuals do not require a $200 purchase to be spread out over three months. They really don’t care if you pay in full for something like that.
Rather, by their very nature, BNPL plans are more likely to appeal to customers who don’t have a lot of cash on hand and don’t have much room in their budgets for wiggle room. However, these same customers must exercise extreme caution when purchasing extras. Therefore, unless it is an expense that you are truly unable to postpone or avoid, it is probably best to avoid signing up for a BNPL plan if you already have a balance on a loan or credit card that you are trying to pay off, or worse, if you are behind on one.
