Don't Let that Holiday Purchase Turn into a Lump of Coal
Buy Now, Pay Later seems great . . . until it doesn't
It was not long ago that the holiday shopping season meant putting items on layaway.
You’d find that perfect gift, pay a percentage of the cost to the store so they would hold it for you, and pay in full before gift giving time in order to retrieve your gift.
You don’t have the money today, but you know your kid needs this bike? Put some cash down now, save up, and be a hero in late December!
Now, though, there’s something even better.
Buy Now, Pay Later means you can pay 25% of the cost of an item and leave with it today.
No worries — you HAVE the item when you leave the store or check out online.
The balance of the transaction is paid over 3 additional installments, usually two weeks apart. It’s auto-deducted from your account or card on file, so you don’t even have to think about it!
Sounds easy — and even better than layaway! You get the item NOW!
Not so fast, consumer advocates say.
In a recent article posted on LinkedIn, advocates with the Center for Responsible Lending highlight some concerns with Buy Now, Pay Later products:
Marketed as interest-free, consumers may end up being charged more than they think they will. If a consumer has multiple buy now, pay later purchases, they can easily lose track of their payments, which could result in numerous fees for missed payments, account reactivation, rescheduling and other hidden fees they weren’t aware of at the outset.
BNPL lenders often don’t assess a borrower’s ability to repay the loans, and accounts can be debited even if the borrower has insufficient funds, which could trigger an overdraft fee. Further, surprise fees and inadequate disclosures make it difficult to compare costs and make the true cost of a BNPL loan difficult to ascertain.
In fact, one recent survey indicated that 1 in 5 BNPL users later regretted the decision to use the product.
According to that same survey:
32% of Buy Now Pay Later plan users have had to skip paying an essential bill such as rent, utilities or child support in order to make their payments. Even after that, 30% report that they’ve struggled to make their payments.
In short, Buy Now, Pay Later is convenient and can be a helpful tool in managing holiday spending. But consumers should exercise caution — there are definite risks that come with the convenience.
Consumers who are most at risk of having BNPL problems also have more than one loan open at a time. If you do use BNPL, then, it’s best to only have one active loan — and to finish paying it before you open another one.
It’s also important to pay attention to payment dates so your bank account isn’t debited on a day when you don’t have sufficient funds.
With 1 in 5 users regretting BNPL and nearly one third skipping payments on other bills to meet their obligations, it is wise to be wary of these products.
Ugh. I feel the weight and dread just imagining this! This holiday, money wise, I'm celebrating finally paying off a credit card. Still have one to go, but wow did that feel good today.