Don’t Use the Phrase “Buy Now, Pay Later” for Prime Day Purchases.
Amazon’s biggest sale of the year—and perhaps the biggest sale of any retailer—is just around the corner, coming in July. The Amazon Prime Day sale is a tempting time to take advantage of major discounts and shop. But one payment option you should avoid is buy-now-pay-later financing. While these plans may allow you to pay off your purchases in installments without interest, they come with significant risks and drawbacks that make them unsuitable for spending on Prime Day. According to a Bankrate survey , nearly 20% of consumers using BNPL have missed a payment and 30% have overdrawn. Let’s look at the hidden costs of buy now, pay later and why you’re better off paying up front for all of the Prime Day deals.
High fines for late payments
The biggest danger with buy now, pay later is missing one of your regular payments. If you don’t make your payment on time, the lender will typically receive a late fee of $7 or more. And those fees can really add up quickly if you miss a few payments. Suddenly, a discounted Prime Day deal doesn’t look so affordable after costly late fees are added to it.
Unexpected interest
Buy now, pay later plans are marketed as interest-free financing. However, in many cases, this 0% interest rate offer only applies if you pay off the entire balance by a certain date. If you have at least $1 left after this limit, interest will begin to accrue at rates that can exceed 25% in some cases . So buyer beware, it’s easy to inadvertently accrue interest if you’re not careful and don’t pay off your balance before the end of the promotional period.
Impact on credit rating
Although buy now, pay later is not a traditional credit card or loan, lenders report payment activity to the credit bureaus. So if you miss payments or default on installments, it can damage your credit score, making it difficult to get approved for mortgages, car loans, credit cards and other financing in the future. Irresponsible use of buy now, pay later could easily offset any of your upfront Prime Day savings.
Limited purchase protection
By using a credit card, you get valuable purchase protection such as an extended warranty, price protection, and the ability to dispute fraudulent charges. Buy now, pay later plans typically do not come with such guarantees. That way, you’ll be on the hook if something goes wrong with your Prime Day purchase or the seller doesn’t get it right. A smarter move is to only buy what you can afford to pay for with cash, a debit card, or a low-interest credit card during Amazon’s Prime Day event.
While buy now, pay later plans are useful, if you really need to finance something big, it’s best to avoid taking on debt for everyday expenses. A little patience and financial responsibility will serve you better than stressing over these financing options.
Keep following Lifehacker’s coverage of Prime Day for the best deals , as well as the ones you should stay away from .