The Hidden Cost of Buy Now Pay Later

^{By Bromwich+Smith Staff | 826words | Reading Time: 4 minutes| Date: 2023/12/05}

Over the past few years, buy now pay later plans, also known as BNPL,  have gained popularity. These plans offer shoppers an alternative to traditional payment methods that allows shoppers to make an immediate purchase while deferring payments. While convenient, these plans  can be detrimental to those struggling with finances. It's essential to understand the consequences of buying now and paying later.  

 Immediate Gratification 

One of the main attractions of buy now pay later is instant gratification: shoppers can acquire an item without having to part with their money up front. This instant satisfaction can lead to excessive impulse buying with no immediate financial impact, and a snowball effect leading to overwhelming debt. 

Accumulating Debt 

For some, buy now pay later plans seem like a hassle-free way to manage purchasing. As we saw above, for others it can lead to a cycle of debt. With multiple installment payments on various purchases, consumers will find themselves juggling due dates and in some cases struggling to keep up. Late payments on these installments can result in additional fees and interest, which contribute to mounting financial burdens.  

Additional Fees: The Fine Print 

Although buy now pay later services claim to be interest free, in some cases the fine print includes fees and interest rates for those who miss payments. Make sure to understand the terms and conditions prior to signing on the dotted line so you can plan appropriately for payment due dates and any consequences of missing payments. 

Credit Score 

Buy now pay later transactions may have an impact on your credit score. Some, not all, will report late payments to credit bureaus which have the potential to lower your credit score. A lower credit score can affect your ability to secure favorable terms for future credit, including mortgages, loans or credit cards. Buy now pay later plans will often do a credit check prior to approving you for their services.  

It is important to understand if the credit check will be a “soft” or “hard” check. A hard credit check will show up on your credit report and has the potential to lower your overall credit score. Multiple reviews of your credit report may be a red flag to potential lenders. 

There are pros to using buy now pay later options. 

1. Immediate access to goods. This may be appealing for those who do not have funds to make the purchase. This could be useful for larger purchases that otherwise may have taken place on credit cards which would have the potential to accumulate fees an interest each month. 

2. Affordability.  This option allows shoppers to breakdown larger purchases into smaller manageable payments. As long as the individual is able to make the payment on time this can be a strong option that provides flexibility and the ability to budget. 

3. Interest free. As long as the payment is made within the set time frame there should be no interest charged. 

4. Convenient shopping. Buy now pay later streamlines the checkout process making it simple for consumers. 

5. Exclusive deals. Some buy now pay later partners will provide retailers with exclusive deals or discounts to their users. This added incentive may entice consumers to choose buy now pay later as their preferred payment choice.  

6. Payment and fees. These services typically allow flexibility when choosing repayment. Depending on the agreement users have the option to select shorter or longer terms based on their needs. For users making payments on time this can be a cost effective way to manage purchases without additional fees .  

7. Credit not needed. Buy now pay later allows shoppers to ditch the plastic and still participate in online shopping and enjoy benefits of deferred payment. 

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Breaking the Cycle of Debt 

With the ease of buy now pay later plans, shoppers may find themselves prone to impulse buying, and spend more than their budget allows. This overspending, coupled with the lack of an immediate financial consequence, can lead to financial instability and over-dependency on debt. Breaking free from any debt cycle, including buy now pay later, requires an effort by the individual to adjust their spending habits and adopt a more concise budget.  

While buy now pay later offers a convenient payment alternative, it's important for shoppers to approach it with caution and awareness. The consequences of buy now pay later can extend beyond immediate gratification and can cause a long-term strain on their finances. From accumulating debt and hidden fees to potential impact on credit scores, the buy now pay later trend is one we suggest researching before committing. 

Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at  1.855.884.9243, Live Chat  or you can request a call back at contact us page. We want to see you flourish!