Buy Now, Pay Later: Is it worth it?
What you should know before the holiday season
If you’ve shopped online recently you might’ve noticed the checkout option to split your purchase up into 4 interest free payments.
These are called buy now, pay later (or BNPL) plans. They’re available at most online retailers now and they’re incredibly easy to use…but?should?you? That?depends on a few things?including the plan itself as well as your financial situation. While these services do provide some enticing benefits, there are some risks to be aware of before checking out.
With the holiday shopping season upon us, it’s important to be on your game with all the marketing about to be thrown at you. Many people use BNPL to fund their holiday shopping — in fact, a?DebtHammer study?saw BNPL usage go up 422% in November 2021 alone. Sheesh!
Unfortunately it’s very easy for your finances to get out of hand this time of year, but if you’re prepared with the right knowledge you have nothing to worry about.
In this blog we’ll break down exactly how BNPL plans work, the benefits, and the risks so you can evaluate if it’ll work for you. If you do decide to use these plans, we’ve also got some helpful tips on how to use them responsibly.
Let’s get into it!
What is buy now, pay later?
Here’s the deal with?BNPL: it’s a form of debt.
Like the name suggests, buy now, pay later plans let you buy and receive something immediately but pay for it later, usually over a few installments. You typically owe the first payment at checkout and the remaining payments are billed to your debit or credit card until the purchase is paid in full.
The terms of repayment and how much interest or fees you’ll be charged varies between providers, however, most BNPL plans offer interest-free payments if you pay your full balance within a short period of time (typically 30 days) and little to no fees.
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How buy now, pay later providers work
BNPL providers make their money from retailers. They essentially pay BNPL providers to make your checkout price look smaller.
It’s financial psychology and a little bit of marketing: if your $200 purchase was only $40 today, you might feel more inclined to buy more. Retailers are betting on you adding those extra items to your cart or buying something when you normally wouldn’t.
The official term for this is?incremental sales?and they’re a big part of BNPL business models because it genuinely works. It’s estimated that the offer of BNPL grows your shopping cart between?30 and 50 per cent on average.
Now, if you can afford the extra item and the larger payments fit into your budget there’s not really any risk to your short- or long-term financial health. However,?many people end up spending and borrowing more than they can afford?and that?is?a risk to your short- and long-term financial health.
It’s also worth noting that BNPL isn’t a new way to pay for something (ahem, infomercials).?Fun fact: BNPL?goes all the way back to the 19th century?when Singer Sewing Machines sold its products for a “dollar down, dollar a week.” Even though it’s not new, it’s?become exceedingly popular recently?primarily because the pandemic has changed how we shop.
According to a?report on 5 BNPL providers?by the U.S. Consumer Financial Protection Bureau (CFPB), the number of BNPL loans in the U.S. has grown by 970% (16.8 to 180 million) from 2019 to 2021. The dollar amount for those loans grew from $2 billion to $24.2 billion. And that’s just America!
The benefits of buy now, pay later
The top reasons people use BNPL services according to a?Financial Consumer Agency of Canada (FCAC) study?are:
The added affordability is a key benefit of BNPL — it puts less of an immediate strain on your finances and you can make larger purchases than you otherwise would if you had to pay all at once. It can be a very?convenient and disciplined way to pay for purchases over time.
Read the full blog here.
Professional Writer
1 年This is the first time I have read content that has taken a deep dive on this topic. Fantastic. (Also, great use of long tail keywords ??)