4 Reasons You Should Beware of 'Buy Now, Pay Later' Services
NEW YORK, December 11, 2020 (Newswire.com) - Buyer beware: those “buy now, pay later” (BNPL) options you see on the checkout pages of your favorite stores can land you in financial hot water. BNPL services—such as Affirm, AfterPay, and Klarna—allow you to purchase items today and pay for them later in a series of interest-free payments.
These services can make large expenses easier to cover and because there usually isn’t a credit check, you don’t need a good credit score to qualify. However, using one of these services can have a negative impact on your finances if you’re not careful.
Why customers and retailers like “buy now, pay later” options
Customers like using BNPL services because it allows them to buy what they want without going into debt. Retailers are fans of BNPL because even though they have to pay a cut of each transaction, they receive payments faster than they would from credit card companies.
Why “buy now, pay later” can be bad for your finances
Here are four reasons you should think twice before using BNPL services:
1. Bad spending habits
You might be tempted to purchase unnecessary items that you normally wouldn’t buy if you had to pay the full amount up-front. When that Peloton you want costs $1,895, you might normally balk at paying that much. But hearing that it’s $49/month for 3 years can feel like a steal (even though it’s obviously the same amount). And if your credit score isn’t great, you could just keep racking up charges with BNPL instead of working to consolidate debt with bad credit, like with balance transfer credit cards or debt management plans.
2. Late fees
Most of these services charge late fees if you miss an installment. For example, AfterPay charges an initial $10 fee and then $7 more if the payment is still outstanding seven days after the due date. While Affirm doesn’t charge late fees, their website does state that “partial payments or late payments may hurt your credit score or your chances of getting another loan.”
3. Exorbitant interest
You’ll have interest-free payments initially, but if you don’t pay your item off within the predetermined time frame, you’ll be charged interest. And these interest fees can be astronomical. For example, Affirm charges up to 30% APR. If you’re stuck paying your items off with an APR this high, you can dig yourself into a deep hole of debt in no time.
4. Won’t improve your credit
If you do pay on time, the majority of these services won’t help you build your credit since they don’t report payment activity to the credit bureaus.
Source: Credello
