Money Bite-Size Read:
- There’s been an explosion in buy now pay later (BNPL) services.
- While more people are using this payment option, it has risks attached.
- Here’s the pros and cons of Buy Now Pay Later to consider before you sign up.
The MoneyBites Take:
Buy now pay later (BNPL) is easy to use for impulse purchases but can leave you with a debt hangover and more of what you want than what you need.
Why pay now when you can pay later?
That marketing line has seen huge growth in BNPL services, which is changing how we pay for things. In one year, payment offers increased by 197% from Q2 2019 to Q2 2020. We are also more aware of BNPL as a payment option, with 91% being aware of the BNPL payment.
However, just because more people are using BNPL, that doesn’t mean it’s right for you.
The recent surge in the usage of these products has been matched by calls from consumer groups, demanding that they be subjected to the same laws as other credit products. BNPL is a credit product, giving you a line of credit like a credit card but without the same protection for you. In a market where these companies self-regulate, it’s important to protect yourself and know the risks before you use BNPL.
Here’s the pros and cons of Buy Now Pay Later (BNPL):
PRO interest-free payments
Many BNPL products don’t add interest to your instalment payments, which means they can market themselves as being free credit (minus your purchase cost).
CON it encourages impulse spending
If you have trouble curbing your impulse spending, take care when using BNPL. Studies show that we can pay up 100% more when using credit rather than cash.
PRO can stagger repayments
If you don’t have the money to pay for something upfront, many BNPL services split up the total amount into instalments.
CON it’s not a budgeting tool
Don’t let BNPL marketing convince you that it is a budgeting tool. The best budgets help you manage your money to reach your goals, they don’t push you into impulse purchases like BNPL.
PRO an alternative to credit cards
One of the key growth factors for BNPL is that young people still want access to credit but they view credit cards as more risky and costly due to interest payments.
CON they charge late fees
A big reason we don’t like BNPL marketing themselves as budgeting tool given that over 20% of BNPL users have recently missed payments and have had to pay late fees.
PRO there’s a low barrier to entry
Most BNPL providers do minimal credit checks, which helps explain why they’re appealing to younger demographics who may not have a credit history.
CON it can impact your credit score
One of things you need to know before you use BNPL is that it can impact your credit score, including through credit checks and not making repayments on time.
PRO there’s a variety of BNPL providers
The number of different BNPL services is growing and competition is intensifying so they need to offer better conditions to attract and keep customers.
CON it can cause financial stress
Many people who use BNPL services experience financial stress, with one in five people going without essential meals to make their payments on time.
Just because buy now pay later is available, it doesn’t mean you should use it.
Part of knowing the pros and cons of Buy Now Pay Later (BNPL) is to consider these before you sign up. Take the time to look at the terms and conditions of any BNPL product and make sure you can meet the conditions of the repayments before you use it.