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There’s nothing wrong with using a buy now, pay later app to make a purchase. Just like using a credit card, it all comes down to how responsibly you use the service.
If you rack up a bunch of debt on your credit card(s), you could be looking at unmanageable payments in the not-so-distant future. Rack up a bunch of payments on buy now, pay later apps, and now you’re looking at bi-weekly or monthly payments you won’t be able to afford.
Keep reading to learn more about buy now, pay later apps and how they can affect your budget.
On average, 17 percent of consumers with a credit record used a BNPL platform to finance at least one purchase in 2021.
The average amount financed among BNPL borrowers within a year is $1,000.
Those with higher incomes are less likely to use BNPL platforms. Only 9 percent of those with annual incomes over $200K used BNPLs at least once.
BNPL use is more frequent among renters than homeowners, with 22 percent of BNPL users identifying as renters and 15 percent as homeowners.
Women are more likely to use BPNL platforms (20 percent) than men (14 percent).
The risk of overspending
One of the main concerns with BNPL services is the risk of overspending. The ease of making purchases without immediate financial consequences can lead to impulsive buying habits and accumulating more debt than planned.
The installment structure of payments may give a false sense of affordability, leading you to commit to payments you may struggle to meet in the future.
Impact on your credit score
Another danger of BNPL services is the potential impact on credit scores. While some services may not perform hard credit checks before approving a purchase, defaulting on payments or late payments can still negatively affect your credit history. This could hinder future financing options or result in higher interest rates for loans and credit cards.
Hidden fees
The terms and conditions of BNPL services can be complex, with hidden fees and high-interest rates that aren’t immediately apparent to users. It’s crucial to carefully review and understand the terms of service before using these services to avoid unexpected costs and financial strain.
A cycle of debt
The convenience of BNPL services may lead to a disregard for budgeting and financial planning. Relying on these services to make purchases without considering long-term financial implications can contribute to a cycle of debt and financial insecurity.
Buy now, pay later alternatives
The immediate gratification of buying something with a BNPL service is a major rush. But using money you currently have saved will always be the best way to go. Did you know that you can set up savings goals within online + mobile banking?
The next time you see something and are considering using a BNPL service, ask yourself “do I need this now?” Consider adding your desired purchase to a savings goal and see how much better it is to pay for your purchase up front than spending weeks having random withdrawals on your account.
If you “must” make that purchase, try to limit the number of active BNPLs you have going on to just one or two. Once you’ve made all the payments on those, you can consider using the service again.
