Buy Now Pay Later - To Use or Not to Use
Buy Now Pay Later (BNPL) has technically been around since the 19th century, but it seems like these days I see the words “Afterpay,” “Klarna,” and “Affirm” - the current leading companies in the BNPL space - everywhere. BNPL has been described as "similar to a credit card but without the hassles of an application process, card-swiping infrastructure, and separate limits for purchases and cash withdrawals." With it, you can buy to your heart’s desire without suffering the consequences… today anyway.
So what are the benefits of BNPL?
0% Financing: One of the perks is the potential for 0% financing. This can be a great deal, especially if you're disciplined about paying off your balance within the agreed-upon timeframe.
Keep Earning Interest in Your HYSA: While you're slowly paying off your purchase, the remaining money can continue earning interest in your High-Yield Savings Account (HYSA).
No Credit Check: Unlike traditional credit options, many BNPL services don't perform a credit check. This can be a game changer for those with less-than-perfect credit.
Split Up the Cost: Breaking down the cost into several months can make larger purchases more manageable on a month-to-month basis.
And the consequences?
Fees for Late Payments: If you miss a payment, you could be hit with fees. Make sure you stay on top of your payment schedule.
Tracking Made Harder: BNPL can make it challenging to track your spending. With multiple payments spread out, it's easy to lose sight of your overall financial picture.
Impulse Buying Made Easier: The convenience of BNPL can tempt you into impulse buying. It's essential to stick to your budget and not let the ease of deferred payments lead to unnecessary purchases.
The Real Mindbender: The ability to split up payments might make the small dollar amounts seem insignificant, even though the total amount of the loan is likely not at all insignificant. You see the small number and don’t see the big deal. This can trick you into spending more than you usually would.
Robbing Your Future Self: You may be saving a buck today, but you’ll ultimately have to pay it back in the future. You don’t want to fill your budget 100% with fixed costs, because you never know when you’ll have an emergency that doesn’t quite meet the “emergency fund” requirements. Using BNPL fills your future budget with more fixed costs, which decreases your ability to be flexible.
In this financial coach’s opinion, using BNPL isn’t the ultimate personal finance crime. If you have the money but you’d rather BNPL for one reason or another and you can be responsible with those future payments, by all means go ahead. Just make sure you go in with caution, knowing full well what you’re doing and what the benefits and potential consequences will be.
