Why You Should Reconsider Using Buy Now, Pay Later Loans

If you have an ongoing subscription service, the easiest payment method is to set up an Autopay plan. If you’re worried about late fees and interest, paying automatically is one way to avoid those penalties.

While you might be tempted to spread automatic payment plans, some recurring fees are better off paying them incrementally. For example, an annual fee per month may cost less than a monthly fee, but you might be hit hard when that annual payment comes due. Tap or click here for five bills you should never pay automatically.

Buy now, pay later Loans allow you to split the cost of your purchase into equal installments and then pay them back on a schedule. While you typically don’t have to deal with credit checks and traditional loan agreements, there are downsides to these payment plans.

The good and the bad

In December, we reported on the potential dangers of “buy now, pay later” services. You’ll often see plans that consist of four installments paid weekly, biweekly, or monthly with a minimum purchase price.

These plans help reduce the financial stress of paying for a product at the same time. It sounds good, but one problem is the temptation to buy more than you can afford. Smaller payment steps can add up faster than you think.

You also need to watch out for hidden fees. While you may not pay interest on the first payment, you may have to do so later. Fixed costs sound good, but the price at the end of the plan can be higher than if you bought the product in one payment.

Fees and surcharges can skyrocket by as much as 30%, and late payments can take a toll on your wallet.

The BNPL boom

There is a new development in the BNPL world. These transactions will now appear on your credit report. In December, Equifax announced it would include BNPL payment information in credit reports starting in Q1 2022.

In January, Experian announced its upcoming Buy Now Pay Later Bureau, which will debut this spring. In February, Transunion announced point-of-sale solutions that allow consumers to add BNPL to their credit files.

These companies advertise the benefit of adding BNPL to your credit history. For one, it can help build credit. Timely repayment of these loans benefits younger buyers and those with poor credit as they offer credit-boosting opportunities that they might not normally be able to afford.

Some popular BNPL services include:

  • To confirm
  • additional payment
  • Klarna
  • PayPal payment in 4
  • Pay
  • sezzle
  • Share it
  • zipper

Amazon has its own BNPL system through Affirm. Tap or click here to learn more.

Not so fast

As with any payment, the lack of a BNPL will affect your credit score if it is part of your report. You also don’t have the same protections from BNPL lenders that you might have from more traditional institutions.

Our advice is: don’t use these services for luxury items or things you don’t need.

Continue reading:

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BNPL is booming, but it’s not good for everyone

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