Buy Now, Pay Later Pros and Cons

The instant gratification of getting additional credit is a temptation trap we must all face. — but owing money is something that should be done with forethought and purpose.

If you have good credit, you can obtain BNPL (Buy Now, Pay Later) loans with 0% interest. For example, if you’re intending to buy some new outside furniture and there is a link for BNPL financing, you could sidestep the interest attached to your cards by buying now and paying later.?

Additionally, BNPL platforms often charge exorbitant interest to the less creditworthy, and missing payments will negatively affect a person’s credit — even though on-time payments do nothing to improve a person’s credit.?

I’ve written before about how credit is often paired with deceptive promotions that target people’s emotions. It’s all about psychology.?

The big three credit agencies — Equifax, Experian, and TransUnion — will begin to monitor Buy Now, Pay Later (BNPL) behavior.

• The average interest rate for a BNPL is 16%, with a range as high as 34% and as low as 0% — depending on credit score.
• BNPL programs are essentially lines of credit that get used to full capacity immediately. Some people are worried that will reflect negatively on their credit utilization score.?
• Finally, there’s the issue of returning things that were purchased with a BNPL plan. Returning an item does not automatically cancel the loan.
• BNPL is part of a new community of alternative credit reporting. Things like successful debits for streaming services and electronic proof of rent payments are now being considered by some lenders to evaluate a person’s credit.

It seems like the only way to know what interest rate you would get with a BNPL is to apply for one. That’s OK, because BNPL credit checks use only soft inquiries. As usual I would suggest a healthy bit of cynicism going into a BNPL contract, and really crunch the numbers.

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