Things to Know Before Using Buy Now Pay Later Financing

The Buy Now Pay Later concept has been around since the Great Depression. Uncomplicated purchases that largely disappeared in the 1980s involved posting a small deposit and payment in installments before taking the purchase home. Although the repayment deferral returned briefly during the Great Recession, it has since been replaced by more expensive financing options like credit cards.

Now buyers have another option: “Buy now”, “pay later” services. The biggest difference from warehouse installments is that you don’t have to wait to pick up the item home, which may be the reason that these services are becoming more popular. You can see Buy Now, Pay Later companies like Affirm, AfterPay, Klarna, QuadPay – and now PayPal – when you sign up at a store or shop online.

More than a third of Americans have used Buy Now Pay Later, according to a new report from The Ascent. These services have become especially in demand when shopping online amid the pandemic . The problem is that most buyers don’t understand how these services work. Here’s what you need to know before using Buy Now Pay Later.

Buy Now Pay Later Benefits

There are several reasons why Buy Now and Pay Later services are becoming more and more popular. “The big plus with Buy Now, Pay Later is that you can get an interest-free payment plan and you don’t need good credit to get approved,” says Nathan Hamilton, credit card expert and industry analyst at The Ascent. … “They’re also very handy — you can set everything up in a few minutes during checkout,” he says.

You can spend more with Buy Now Pay Later

While the Buy Now Pay Later feature may offer some perks, there are drawbacks. The largest one may be spending more than you planned. According to a 2019 Klarna report , these services increased Gymshark purchases by 33%.

“Try not to get in the habit of using these services. They are useful if you really need to finance a purchase, but avoid borrowing for your day-to-day purchases whenever possible, ”Hamilton recommends.

Keep track of costly fees and interest

Another disadvantage: potential fees and interest. Depending on the Buy Now, Pay Later Company and your creditworthiness, you may pay commission, interest, or both for ease of financing.

For example, Affirm charges between 10% and 30% APR based on your credit score, and Klarna charges 19.99% for standard purchases with a minimum of $ 2.00 per month. While some companies may offer 0% per annum for a specific period of time, you can pay a lot more at the end of the promotional period . “Buy now, pay later” works well when you stick to a payment schedule, but if you don’t, you may be charged commissions and interest, ”warns Hamilton.

To avoid problems, Hamilton recommends checking your payment schedule, including the exact payments, the due date, and the due date within which you must redeem your purchase. “It’s also worth checking the late fees and interest rates because that can be a great motivation not to miss a payment,” he adds.

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