Remember back in the day? “But wait… there’s more! With only 10 easy payments of $19.99, you receive not one, but TWO snuggies!”
The idea of making small and easy payments after receiving an item was almost thought of as a bit of a joke or meme.
However, I recall a couple of years ago purchasing an iPhone on the Apple website. On the checkout page, I was surprised to see the option of paying it off in 4 equal monthly payments. No fees or interest, they said. Lately, I’ve started seeing this option on more and more websites: Wayfair, Amazon, Best Buy.
You may be surprised to know that “Buy Now Pay Later” (BNPL) now accounts for over 2% of all e-commerce transactions globally – over $100 Billion!
The premise is generally the same – The cost of your purchase can be equally divided over a few weeks or months, and there’s “no additional cost” if you make your payments on time.
Did you catch that?
If you make your payments on time.
What isn’t as transparent is should you not make your payments on time, you may be paying up to 29.99% interest… that’s higher than carrying a balance on your Credit Card!
Additionally, the 0% interest rate options are generally only offered when selecting the shortest possible timeframe to pay. For example, you can often elect to pay back an item over four weeks (one payment per week) at 0% interest, but with such a short timeframe, you can likely afford to pay for the product upfront anyways.
However, as soon as you elect to pay the item off over a longer period, interest rates can quickly jump to 9.99%, 19.99%, or even higher.
When deciding if the BNPL option is right for you, we have a simple perspective. If the item you’re buying fits in your budget, you likely have the ability to pay for it upfront without using BNPL. Additionally, even if you can afford the item upfront but are trying to squeeze an extra few weeks before having to pay it off, is risking a forgotten payment worth it? One missed payment could affect your credit, you could incur fees, and the interest will instantly begin to add up.
And if the purchase doesn’t fit within your budget, is making the purchase the right decision in the first place?
Don’t forget, if you begin using BNPL for multiple items, these small payments can really begin to add up over time.
We know there are times when we may feel like we need to purchase something for one reason or another, however there are likely better and safer options available to you instead of BNPL.
Speak with a PenFinancial advisor today to find out what options are right for you.