Buy now, pay later (BNPL) is a popular way to buy things. You can use it for cars, homes, and even debt. But there are some things to watch out for, especially if you’re prone to overspending. Here’s what you need to know.
1. Make sure you have the funds to pay back the loan
If you use BNPL to buy a car, for example, make sure you have enough money saved up to pay back the loan plus interest. If you cannot do that, your credit will be affected, and you may need to use a debt consolidation loan calculator to help get your finances back in shape.
2. Make sure the item is really worth the extra hassle
If you’re using BNPL to buy something expensive, like a designer bag or clothing, make sure it’s really worth it. You may want it in the moment, but the additional hassle of remembering your loan terms and ensuring you have enough money for multiple payments can become a real headache. Sometimes it’s just better to wait for when you have the money or hold off until the item goes on sale.
3. Know your terms
When you use BNPL, make sure you understand all of the terms involved. You may be required to pay interest on top of the purchase price if you don’t pay back the loan on time.
4. Be prepared for hidden fees
Some lenders charge extra fees for using BNPL, such as a fee for transferring the money from your bank account to make your payments or excessive penalty fees for late payments or bounced checks. Make sure you understand all the costs before signing up for a loan.
5. Use BNPL cautiously
Don’t use BNPL just because it’s convenient – think about whether it’s actually going to save you money in the long run. Using it to overspend or buy the things you don’t need can end up costing you more due to impulse purchasing.
What is BNPL and how does it work?
Before you decide whether or not BNPL is right for you, it’s essential to understand what it is and isn’t. BNPL is a type of credit product that allows you to borrow money and pay it back over time, sometimes even interest-free. Many people have used BNPL for vacations, clothing, jewelry, and even cars.
Typically, you would use BNPL to borrow money to buy something you need right away, and many BNPL offers are often found right in the checkout area of an e-commerce site. It’s often easy to apply and get an instant approval for your loan, allowing you to pay for the things you want over time instead of all at once.
Also, BNPL isn’t just for buying things – you can also use it to borrow money to pay off your existing debt. For example, if you have a credit card with an annual interest rate of 19%, using BNPL could save you hundreds in interest if you get a better offer.
However, BNPL isn’t a magic wand that can solve your financial issues, and if you’re not strict with your spending could cause you to go even further into debt due to the tight payment deadlines and hidden fees.
The bottom line
BNPL is a good option for some people, but it’s not for everyone. Before signing up for a BNPL loan, consider the pros and cons carefully to make sure it’s the right decision for you.