Understanding the Fine Print of "Buy Now, Pay Later" Services

If you’re looking to make an online purchase, you may have noticed an additional payment option called "Buy Now, Pay Later." These services allow you to make purchases now and pay for them in smaller installments over time, like a layaway program. Sounds great, right? While this can seem convenient, it’s important to understand the drawbacks. Let’s dive deeper into how these services really work.

How do "Buy Now, Pay Later" services work?

When you find something you’re ready to buy, instead of paying the full amount upfront, there may be a "Buy Now, Pay Later" option. You’ll get the item now, but you will pay for it over time. This could be weekly, bi-weekly, or monthly, depending on the terms you agree to.

Some "Buy Now, Pay Later" services may also require a down payment or have interest fees. Be sure to check the terms and conditions of the service to avoid any surprises.

What’s the risk?

Impulse Purchases

While the application process for "Buy Now, Pay Later" services is simple, it can lead to more impulse purchases and financial strain since the payment isn’t made upfront. A good way to avoid impulse spending is to pause before buying. Avoid purchasing items the moment they catch your eye — give yourself time to think. Ask if you truly need the item, sleep on the decision, and revisit it the next day. If it still feels like a smart purchase, check your budget to make sure it fits. If it doesn’t, consider saving up before you buy.

Lack of Protection

While we don’t recommend using credit cards either, they do offer more protection if your purchase turns out to be a scam or isn’t what you expected. “Buy Now, Pay Later” services typically don’t provide the same dispute options, which can leave you with fewer ways to resolve issues. Now, if you’re looking for the security of a credit card but want to stick to a budget, using your debit card is always a smarter choice.

Complicated Returns

Since you may not have fully paid for the item by the time you receive it, returns or exchanges with "Buy Now, Pay Later" services can be complicated. The company may require you to pay the total cost of the item until the return can be resolved with the original seller.

Impact on Credit

While "Buy Now, Pay Later" services usually don't affect your credit score directly, missed payments and late fees could harm your creditworthiness in the future. Some services will take a soft pull of your credit score to determine your eligibility. Every service is different, so be sure to check the terms and conditions.

Missed or late payments can negatively affect your credit score, while on-time payments may not necessarily improve it. According to Equifax, the way "Buy Now, Pay Later" payments are reported to credit bureaus is still developing.

If you’re considering using a "Buy Now, Pay Later" service, it's probably time to create or review your budget. Relying on these services for purchases can mean underlying issues with financial planning and savings habits, potentially creating a bigger problem with managing finances. Ultimately, adopting a save now, buy later approach is always a good idea.