Gotta have it now, but don’t have the cash? Why not buy now, and pay later? (BNPL). It’s the perfect way for you to get that thing you want even if your wallet is practically empty, right?
Maybe.
Or maybe not.
Learn about these programs, how they work, and what to be aware of before you sign up.
How BNPL works
A BNPL button or option is often encountered when checking out at online retailers. This option will usually link you to a BNPL app, such as Afterpay, Affirm or Klarna. A brick-and-mortar store may offer this option at checkout as well. Even though you’re purchasing in-store, you’ll still pay through an affiliated app.
Here’s the important fact: BNPL is a loan. That means you’ll need to get approved and the apps will usually run a soft credit check to confirm your information. Once approved, you can choose to link your debit card, checking account, or credit card so the app can collect the payments when they’re due. Next, you’ll generally make a 25% deposit on the purchase, and the item is yours. Most BNPL plans require you to pay off the rest in three fixed installments, but payment schedules can vary.
When BNPL may be helpful
BNPL programs can be a good choice for items you urgently need, but can’t afford right now, like medical equipment that’s not covered by insurance. It can also be option for workers with an uneven income flow who may experience lean times of the year, but know that better cashflow is ahead.
When BNPL may be harmful
It encourages overspending.
It’s easy to think that if you’ll only be paying a small part of the price today, why not buy it now instead of financing the full amount?
Missed payments are penalized.
Some services slap an interest charge on your outstanding balance, with rates as high as 40%. Other programs will charge a one-time late fee, which can be as high as $39. Others will tack on an extra fixed fee to all subsequent payments.
It can kill responsible financial habits.
If someone has purchased multiple items through BNPL programs, the monthly payments won’t be so minimal. The payments will need to be factored into a budget and can eat into other important categories, like savings.
Buy now, pay later programs can be super-convenient, but they also present risks. Our best advice? Use with caution or consider alternatives.
BNPL alternatives
Want to avoid BNPL programs, but don’t know how to afford the item you want? MSGCU has plenty of options to help members meet their financial goals. We’re here to help with:
Want to talk with someone more about BNPL, or understand how it affects your finances? Make an appointment with one of our certified financial counselors at any MSGCU branch office.
- low interest rate credit cards
- emergency funds with Member Fast Cash
- personal loans
- budgeting assistance and financial education
Want to talk with someone more about BNPL, or understand how it affects your finances? Make an appointment with one of our certified financial counselors at any MSGCU branch office.
Category: Finance
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