Installment plans have been around forever, but today’s iternation, known as Buy Now, Pay Later, is growing in popularity and platforms. With Apple entering the Buy Now, Pay Later (BNPL) market, and the number of consumers using BNPL predicted to grow to over 59 million this year, you may be wondering if BNPL is right for you. Keep reading to learn how it works and the pros and cons to consider.
What is Buy Now, Pay Later?
Buy Now, Pay Later (BNPL) is a type of consumer credit that evokes the concept of layaway from years past. Buy Now, Pay Later purchases can be made through an app or at checkout on a retailer’s website. However, BNPL offers instant gratification; with one installment payment at checkout your purchase will be shipped out to you. The remaining installments are due at pre-determined intervals, such as every two weeks or once a month. Penalties for missing a payment vary by BNPL lender.
As compared to a credit card, many BNPL lenders don’t charge interest (but may charge a fee for late payments), but the installment payment amounts may be higher and more frequent than the monthly minimum payment for the same purchase on a credit card.
Generally, BNPL users are attracted to the convenience of the service. It only takes a few minutes to set up an account and seconds to complete a purchase with an existing BNPL account. There is no hard credit check, as with opening a new credit card, that can temporarily lower your credit score. A large purchase seems more affordable when broken into installments and, if no interest is charged, it can seem like there’s no harm in choosing BNPL. There is also less risk of accumulating a credit card balance you can’t pay off in the same month, since BNPL purchases are scheduled to be paid off in a matter of weeks or a few months.
Pros and Cons of BNPL
Are you considering using BNPL to make a purchase? Consider the benefits and potential downsides:
- Easier to qualify for than a regular credit card
- Potential for interest-free financing
- A convenient way to complete purchases
- Some BNPL options don’t affect your credit score
- Could help you better manage your spending
- An alternative to credit cards
However, as with any type of credit, you have to use BNPL responsibly to enjoy its benefits without experiencing its downsides. A $27 installment payment may not seem like much, but what if you make five BNPL purchases in the same week? The number and total amount of installment payments can add up quickly, potentially overburdening you and sabotaging your budget, especially if an unexpected expense like a car repair comes up in the same period.
Discover financing options from American National Bank!
Buy Now, Pay Later isn’t for everyone. Whether you decide to use it for some of your purchases or not, you may still need traditional financing options such as credit cards and personal loans. After all, BNPL is mostly limited to online purchases and doesn’t offer rewards or certain protections like a credit card. Browse our credit card and personal loan options, and contact us with questions.