The digital shopping experience is constantly changing.
So, too, are the ways we shop. Online shopping is now the method most people use to source new products. It’s much more convenient than getting up and going to a store, much simpler if you’re looking for sales, and so much easier to start buying things you can’t really afford.
Of course, the digital marketplace has found a solution to that problem. Buy now, pay later (BNPL) options are emerging as a popular payment alternative. Through these, consumers can achieve the promise of immediate gratification without immediate financial repercussions.
The Pros and Cons of Buy Now, Pay Later Schemes
Before we dissect what makes these options good or bad (and how you can navigate them successfully!), let’s start with a basic definition.
What Are BNPL Schemes?
When shoppers sign up for a BNPL plan, they opt in to a way to acquire a good or service immediately while deferring payment for that good into installments over time. These plans often offer shoppers an interest-free period. However, if any payments aren’t submitted on time, shoppers may be subject to late fees.
These plans are often marketed by their immediate perks; when you sign up for one, you get your product or service now without having to deal with the financial ramifications.
That’s all very nice and good. But what are the downsides of BNPL schemes?
Potential Pitfalls of BNPL
BNPL schemes can help out in a pinch, especially when people are dealing with temporary cash flow issues.
However, they’re also rife with risk. For example:
- After any promotional zero-interest periods end, you might get slapped with unexpectedly high interest rates.
- Repeated use of BNPL schemes can result in accumulated payments that you didn’t consciously plan for.
- If you’re not able to make payments, that could lead to more interest, more fees, and more debt.
That’s to say nothing of the logistics of managing your payments later on. Let’s say you do have the money to pay all of them on time. If you indulge in several BNPL plans at once, you’ll have a lot of payments to juggle. Miss one, and the consequences could be severe.
And if you don’t have the money to pay them, that leads to missed payments, financial strain, and potential repercussions to your credit score.
The Fine Print Matters: Terms and Conditions
Although part of the point of BNPL services is to move through checkout quickly, taking a moment to check the fine print can save you from future financial headaches.
Here’s what to keep a look out for:
The Importance of Reading the Fine Print
Some BNPL plans may tack on hefty fees if you miss any payments at all. This can make a relatively inexpensive splurge extremely costly, especially if various purchases start to add up.
Knowing any interest rates that may apply is also key. If you want to avoid surprises later when you get your bill, you need to know how much your rate is—and when it’ll kick in.
Questions to Ask Before Using BNPL
Interested in using a BNPL service as safely as possible?
Ask yourself these questions before completing a purchase:
- Are there any late fees or penalties for missed payments? What are those penalties?
- Will signing up for this service affect my credit score? If so, how?
- How long is this no-interest promotional period? What is the interest rate after it ends?
- How frequently do I need to make payments? Do I have any flexibility in determining payment dates?
- What happens if I need to return the item? How does that affect my repayment plan?
Asking these questions up front can save you significant headaches later on. However, they’re not the only steps you can take to avoid the downsides of buy now, pay later programs.
Resisting Impulse Buys: Making Thoughtful Decisions
Whenever possible, prioritizing thoughtful purchases over true impulse buys is likely the best strategy for your financial health.
Here are three practical strategies to help you shop more thoughtfully:
- Give yourself a rule of waiting 24 hours (or longer!) before making purchases that aren’t specifically necessary.
- If you do find something that you would like to buy while you’re scrolling through social media, add it to a wish list instead of mindlessly adding it to a cart.
- Commit to comparing prices and doing your research before going through with a purchase. You may find the item you want cheaper elsewhere—or realize that you actually want something slightly different!
It’s also a good idea to practice safe online shopping habits, such as verifying retailer security and authenticity. To do this, check for “https” in a website’s address for an indication of site security, and read customer reviews to glean a good idea of the seller’s reliability.
Looking for further ways to manage your finances well while enjoying the ease of online shopping? Your team at BNC National Bank is here with personalized, always-relevant support. Check in with our team if you have any questions, and, in the meantime, stay informed, stay in control, and shop smart!
