Do’s and Don’ts for Buy Now Pay Later

| Tedis Baboumian |

Do’s and Don’ts for Buy Now Pay Later

Buy now pay later (BNPL), also called point of sale installment loan, is a way to spread out the cost of purchases by paying a portion of the cost upfront and spreading out the remaining payments in a series of equal installments. It’s similar to layaway except you get your purchase up front and make payments after the fact. 

This type of financing is commonly offered as a payment option when shopping online. Examples of BNPL companies include Perpay, Sezzle, Zebit, and Affirm. Before making purchases using this option consider some do’s and don’ts for buy now pay later.

Do Understand Repayment Terms

When you decide to finance a purchase using BNPL, your payments may be due in weekly, biweekly, or monthly installments. It’s a popular payment option for many people since when you make payments as agreed, your loan may be interest-free and the debt is gone in a matter of weeks or months. It’s important to know what penalties you may face if you can’t pay. If something unexpected happens and you can’t pay, you may be hit with fees and high-interest rates. 

Don’t Buy if You Can’t Afford Payments

Financing purchases using BNPL makes it easy to make purchases when you don’t have the money but it increases the amount of your overall debt. You may be able to borrow $1,000 or more with BNPL, but that doesn’t mean you should take advantage of this option. It can be easy to overspend when purchases are split up over time, and if you do, you may find yourself struggling to make payments, which can hurt your credit.

Don’t Rule Out Other Options

The fact that a purchase may be financed interest-free makes BNPL an appealing option for many people. Don’t immediately settle on this type of financing without considering other options. Using a credit card may help you to earn rewards such as cashback. Getting a personal loan allows you to finance the money over more than a few weeks, which may be a better option for major purchases.

Do Make Payments on Time

Whether you decide to use BNPL, a credit card, or a personal loan, it’s important to always make payments on time. BNPL lenders may or may not report to the credit bureaus, but if you fail to pay back what you borrowed, there’s a good chance it will hurt your credit. Always make payments on time and pay in full if you can.

Do Watch Your Credit Score

If you decide to make a purchase using buy now pay later, it may or may not have an impact on your credit. Some BNPL companies report to the credit bureau while others don’t. There’s a fast approval process usually based on a soft inquiry. Since most BNPL companies don’t do a hard inquiry, the inquiry should not impact your credit. If you’re hoping to build credit, this type of loan probably won’t help. If you miss payments, it may bring down your score.

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