“Buy now, pay later” plans, or BNPL plans, have become more popular in recent years. Recent Research from The Ascent shows that a good 50% of consumers use them. And you may be thinking of doing the same.
Unlike a credit card, where you’re charged interest for financing purchases over time, BNPL plans don’t impose fees for letting you pay off purchases in installments — that is, if you stick to your agreement. And you can generally qualify for one of these plans on the spot, at the point of your purchase. That’s different from a credit card, which you have to apply for and wait to get approved.
While BNPL plans might seem like a convenient way to pay for larger purchases (or even not so large ones), there is a danger in using them. So it’s important to ask yourself one key question before moving forward, says financial expert Suze Orman.
Make sure you’re doing the right thing for your finances
BNPL plans can be very tempting. If you want to buy a $400 gaming system but don’t have the money in your checking account to cover its cost in full, you can generally pay a portion of it — say, $100 — on the spot and then finance the rest over what’s usually a two- or three-month period. Stick to your payment agreement, and there’s no interest or fees to worry about.
But the problem with BNPL plans is that they can trick you into buying items you can’t really afford, says Orman. They can also fool you into believing that a given item isn’t really as expensive as it actually is.
Therefore, Orman says you should ask yourself this question before moving forward with a BNPL plan: “If I had to pay 100% of the cost right now, rather than just 25%, would I still buy it?”
If the answer to that question is no, it’s a sign you should probably be walking away from that purchase rather than going through with it. And the reason is simple. If you can’t afford to pay 100% for a given item right now, your financial circumstances aren’t likely to change so much that you can afford that item easily over just two or three months.
An option best reserved for emergency purchases
You might run into a situation where you have to buy something unexpectedly that you don’t have the money to pay for in full, like a new laptop so you can continue to work. In that situation, it may be reasonable to fall back on a BNPL plan in the absence of having the money, just as you’d maybe have no choice but to put the expense on a credit card and pay it off as quickly as possible.
But you don’t want to use BNPL plans as a means of justifying non-essential purchases you can’t afford outright. If you do, you might end up paying more than expected.
See, BNPL plans won’t charge you added costs if you stick to your payments. But if you fall behind, interest and penalties can easily come into play.
Not only that, but falling behind on a BNPL plan could easily cause damage to your credit score. So much of the time, you’re better off passing on this increasingly popular payment option rather than saying yes.
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