If you’ve been doing any online shopping, you may have noticed more retailers offering payment plans called ‘Buy Now, Pay Later’(BNPL). Unlike the layaway programs of the past, BNPL apps allow you to pay a portion of your purchase and receive your purchased item immediately.
This may be convenient for large ticket items where you may not have the cash on hand to pay in full upfront. Or perhaps you just don’t want to use all the cash savings you have on hand.
For this convenience though, does it really save you money or is this just another marketing tactic for you to pay more long-term? How exactly does BNPL work?
Here’s a closer look at 3 of the most common BNPL options.
This option allows you to pay for your purchase in 4 equal payments over a 16-week period. They have a vendor network of over 12,000 retailers so you could probably find anything you want using this payment system.
Approval is done on a per-purchase basis. If you miss payments, your credit isn’t affected because Afterpay do not report to credit bureaus.
You may already be familiar with this option as it is available at retail giants like Walmart, Wayfair and Casper. Affirm does require a soft pull on your credit but there is no minimum credit score required.
This could arguably be considered the pioneer of the ‘Buy Now, Pay Later’ movement. They have several different payment plans, the most popular being the ‘Pay In 4’ plan. This allows you to split your payment over four equal payments with no interest charged. Klarna also helps you to comparison shop and lets you keep a running list of items for price drop alerts.
THE BOTTOM LINE:
If you’re planning to make a big purchase (anything over $1,000) but don’t want to pay for it in full, there are retail apps that allow you to buy the item and pay for it in installments called ‘buy now, pay later’ (BNPL). Though convenient, this may cause you to overspend – thinking that you’re using less money today but really the dollars add up when tomorrow comes. This method of payment should be done with heightened awareness and caution.
Retailers support these apps because they market to you in such a way that entices you to buy more while making you think you are spending less money.
The reason you’re using a BNPL app is similar to that of credit cards: you’re just delaying paying the full price.