Many of us have either heard of or have used Buy Now Pay Later (BNPL) apps or other similar services. Unlike the layaway plans of yesteryear where you made a series of payments and received your item when it was paid in full, BNPL programs allow consumers to break their purchases into equal installment payments over a specific timeframe while receiving their purchase immediately. They have become a convenient way of splitting purchases into more affordable bite-sized pieces and can be a great way to help manage your budget, if used the right way. Just be aware of the potential costs that can drain your finances if you are not organized with your payment plan and well-aware of the potential costs if you do not pay on time.
Here are a few things to be mindful of when investigating BNPL services.
Impulse purchases. When you don’t have to pay for something in full immediately, impulse buying can be a real thing. When payments are split into weekly, bi-weekly, or monthly payments, the blow to your bank account lessens which removes some of the guilt for impulse purchases. Many people have confessed that when using BNPL services, that they spend more than they typically would. This can also fuel unhealthy shopping addictions. Easily having access to a BNPL service gives instant gratification when making a purchase – which can become addicting. Be sure to set boundaries for yourself and stick to your budget the best you can. While BNPL services aren’t all bad, as they can come in handy for emergency purchases or funding your holiday shopping, please be sure to use caution.
Impact on Credit Score/Report. Using these services can keep you from building positive credit history. If you make your payments on time, these BNPL services do not report to credit bureaus, but if you miss payments or stop paying all together, this could hit your credit report and have a negative impact. Consider using a credit card, especially if you are making a large purchase and are wanting to make a positive impact to your credit score when making payments on time.
Fine Print and Fees. Be sure to read the fine print when using any new service. Using these services can come with inflated product costs and higher service fees. Many of them require you to spend at least $35 to make a purchase. Participating retailers take advantage of this and inflate product prices. This also leads to consumers purchasing more products than originally intended so they can meet that $35 minimum. This can quickly become a budget buster with high balances, missed payments and a cycle of fees and interest that can quickly become out of control. For example, if you miss a payment or don’t pay off the purchase within the allotted timeframe, the BNPL service can charge you $10 or up to 25% of the purchase price. Some even charge what's called "deferred interest," meaning interest accumulates on the original purchase price, not the remaining balance. These fees can add up quickly. 31%* of buy now, pay later users have made a late payment or incurred a late fee. 36%* of BNPL users say they are at least somewhat likely to make a late payment within the next year. Your impulse purchase that was supposed to be paid off in 4 easy payments, can now turn into months of fees and payments. If you do use these services, be sure to make your payments on time. If you are unable to make a payment, be sure to log in to the account you are using to see if rescheduling the payment is an option.
Fraud and lack of regulation. Just because it's easy doesn't mean it's a wise choice. The Buy Now Pay Later market has faced a lot of public scrutiny due to lack of regulation making it easy for consumers to sign up and take advantage of these services, but harder to get their money back if the item they purchased is damaged or a fraudulent purchase. BNPL programs don’t offer the same consumer protections as credit cards, including chargeback rights. If you receive something that is defective or not as advertised, you can get reimbursed if you pay with a credit card, but that’s not the case with all BNPL financing options. Recently, Square has purchased the BNPL service, Afterpay. Square also owns the popular Cash App service. Square Co-Founder and CEO Jack Dorsey plans on allowing Afterpay consumers to manage their installment payments directly in Cash App. Cash App is a “peer-to-peer” (P2P) payment service similar to Zelle® and Venmo. Some BNPL users have even had trouble with disputes and returns and have not been able to be refunded or credited for their missing or damaged items. According to the Federal Trade Commission, complaints against Cash App are up 472% in a year, increasing from 735 complaints in 2019 to 4,204 in 2020. Please be wary of using any external payment methods and be sure to do your research on how these various services protect you, the consumer.
Beware of Scams. Be aware that fraud has increased when using Cash App. If you are not careful, fraudsters can trick you into giving them your account information or log in credentials in return for Cash App offers that sound amazing. As with anything, if it seems too good to be true, it probably is! And NEVER give out your account information or login credentials to anyone.
A Better Option. Credit cards have the potential to either help or hurt your credit score depending on how you use them, but most BNPL apps and services only have the potential to drag down your score if you fail to pay off your balance. If you’re looking for a smarter way to make purchases and to protect yourself the best way possible, use a reputable credit card with a low rate. JHFCU offers great credit card options like our Visa Platinum Card with rates as low as 7.9%* with no annual fee or balance transfer fee! Have a bigger project? Take advantage of our Anything Loan instead. Simply log in to JHFCU’s Online Banking and apply.
*APR = Annual Percentage Rate. Rates are based on applicants’ credit and the type of credit card and may vary at JHFCU. Fee for foreign purchases is 1% of each transaction in U.S. dollars. Cash advance fee is $5 or 2% of the amount of each advance, whichever is greater.