4 considerations to take into account before choosing “buy now, pay later”
- “Buy now, pay later” can be very tempting for expensive vacation shopping, but it has its drawbacks.
- It is crucial to make sure that you can actually make the payments. It could even affect your credit score.
- Using your credit card instead could also earn you points and rewards that you wouldn’t otherwise get.
- Learn more about Personal Finance Insider.
At the end of each year, I tend to have a hard time staying on budget. There are a lot of vacation shopping that I feel I need to buy for the people in my life, and I often wonder how I’m going to afford it.
While I try to create a gift list as early in the season as possible and set a ceiling price for each person’s gift, it can be difficult to meet these limits.
Recently, when my holiday shopping was mostly online, I was tempted to use the “Buy Now, Pay Later” services that some e-commerce stores offer at checkout.
The way it works is that you pay a small down payment up front and then have future payments (which may or may not include interest) over a set period of time.
Before I said yes to these services, I decided to chat with financial advisors to determine if this was a smart option or a costly mistake, and see what suggestions they had about the use of “Buy now, pay later”.
1. Make sure you understand the actual cost of the item.
Financial Advisor Greg wilson recommend being careful and taking the time to fully understand what the actual price of the item will be and consider whether it will be worth it for you.
“It’s important because the seller understands how they built the pricing structure,” Wilson said. “The interest is ingrained one way or another.”
2. Make sure you have a plan to pay it off
While these services make it easy to secure the item you want now, Dylan Orosz, a CPA, recommends having a plan in place to pay off what you’re about to buy.
“Don’t let the options get you to overspend,” Orosz said. “You have to spend within your budget, whether you pay now or later. ”
3. Consider what happens if you can’t pay later
Even if you are sure that you have the funds to pay off the debt you incurred for the item you wanted in the near future, there is always a chance that something will happen and your financial situation will change.
This is why the financial planner Brittney castro advises people to make sure they understand the consequences of using a payment service later on, and to make sure they are prepared to make payments for the duration of the entire plan.
“If you miss a payment, it could run you up for additional fees and can even negatively impact your credit score, as missed payments and defaults are usually reported to credit bureaus,” Castro said.
4. Consider using a credit card first.
Leslie Tayne, a financial lawyer, suggests considering the use of a credit card rather than “buy now, pay later” services.
“Retail installment loans can be worth it if you can pay off the merchandise on time and avoid paying interest,” Tayne said. “If you are a disciplined budgetist, these loans can help you get what you need and want without a credit card. “
However, she added that if you have a credit card there might be some benefits to using it instead, especially if you can earn rewards or points.
“Plus, your credit card may come with consumer protections, such as extended return policies, that your point-of-sale loan doesn’t offer,” Tayne added.