3 Things You Didn’t Know About Buy Now, Pay Later Financing

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The Buy Now, Pay Later trend is sweeping the holidays this year. And why wouldn’t it? As a quick and convenient way to afford high-cost gifts and goodies, Buy Now, Pay Later (BNPL) financing is an opportunity for shoppers who may not have a lot of cash for one big purchase but who can reliably make smaller payments.

Accessibility aside, BNPL financing has some drawbacks. Let’s take a look at three of them in depth to ensure you know what to expect in case you ever want to borrow.

1.They Aren’t Available for All Purchases

BNPL setups are perfect for when you want to purchase a new pair of Jordans when you don’t have the $400 upfront, provided the retailer has a partnership with a financing company. But it’s less than perfect in any other situation.

Despite BNPL’s growing popularity, many retailers don’t offer this payment option at checkout. It’s also not a mainstream option for bills, fees, or services. That means you probably won’t be able to rely on BNPL financing when you need to call out a plumber for a midnight emergency.

Just because BNPL financing isn’t available in these situations doesn’t mean you won’t still need help to cover unexpected plumbing repairs and other emergency expenses. Luckily, an oldfamiliar financial tool remains a possibility: the personal line of credit.

If you are in the middle of an unexpected emergency right now, you can quickly find out how to qualify for a personal line of credit that may provide you with the funds you need to take on urgent repairs. This mainstay of financial products has been a popular choice for many consumers for far longer than BNPL has been around.

2.You May Spend More Than Usual

Surveys show that BNPL financing makes people spend more on non-essential items. According to a Cardify.ai study, BNPL shoppers spend as much as 40% more when they use this financing. Two-thirds of these shoppers admit they spend this extra cash on luxury items they would not ordinarily purchase without this financing.

In this sense, Buy Now, Pay Later financing has something in common with credit cards. Because these financial products facilitate digital transfers of money, most people have trouble conceptualizing how much money they spend.

These transactions rely on a series of 1s and 0s, not the physical exchange of cash. Without that tangible loss of bills and coins, you can spend well beyond your budget.

3.Several Installment Payments Can Be Hard to Track

The perk of a single financing plan is that it breaks down your lump-sum total into four smaller payments. Most plans don’t come with finance charges or interest like personal loans, so these smaller payments are easier on your budget.

Money management becomes a problem when you stack these plans. It’s a lot harder to budget for multiple payments every month, even if they are individually small. Stacked, they can represent a huge sum.

According to banking consulting firm Cornerstone Advisors, 43 percent of BNPL shoppers were late with a payment. The reason? They lost track of due dates because of stacking. And while most plans don’t come with finance charges upfront, nearly all financing will apply late fines and other delinquency penalties.

The Takeaway:

In some ways, BNPL plans make shopping more affordable and accessible to the average shopper, but this financing comes with risks. Knowing now that they encourage you to spend more, you can use these plans wisely. Budget your spending and don’t go over your limits.

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