It seems to be everywhere: the option to “buy now, pay later”. Convenient? You bet. Helpful? Maybe. A good idea? Rarely. Before you “buy” into the hype (literally), let’s explore some things to consider before you click that button.
What is BNPL?
Buy now, pay later (BNPL) is a way to get your stuff now and worry about paying for it later. I’m old enough to remember when layaway was popular (but just barely, LOL). That was a way to pay for your stuff in installments, and once you paid in full, you got to take home your stuff. There is a significant difference that is important to point out: today’s society demands instant gratification – we want something, and we want it now – even if it means we have to go into debt to get it.
BNPL loans (yes, they are considered loans) are usually set up to require four payments. Sometimes they are interest-free, which is at least better than putting your purchase on a credit card and not paying off the balance in full (at 25-35% interest, eeek). However, if your situation changes (or you simply forget) and you don’t make the installment payments, penalties and interest can rack up.
BNPL Mind Tricks
First, advertising and marketing is all around us and constantly vying for our attention. There are plenty of mind tricks being used right there, but that is another blog post altogether… The basis of advertising is to get you to want to buy that thing they are selling. They could care less if you actually need it or not. BNPL makes it much easier for our brains to justify that purchase, because we see a small number (the total divided by four payments) and we think it’s no big deal. As a result, it’s much easier to overspend on “wants” vs “needs” and make those impulse purchases.
Using it for “Needs”
A recent study by Lending Tree revealed that 21% of BNPL users say they’ve used one of the loans to buy groceries. Yikes! 27% of users say they use these loans as a bridge to their next paycheck. Scary.
We all know the cost of everything has gone up these past few months. Hard working families are feeling the squeeze in their budget. Perhaps there is no other option than to use BNPL or credit cards to put food on the table. The alarming part about that is, it leaves you robbing your future self.
The payments still must be made, and if you are spending more than you make each month, that is not a sustainable way to live. If you finance too many purchases, more of your take-home pay will be going toward paying down your debt, and you’ll find it harder and harder to get ahead. If you aren’t paying your balances in a timely manner, fees and interest charges can dig you an even bigger hole.
BNPL is another tool (like credit cards) that makes it very easy to overspend and mismanage your hard-earned money if you’re not careful.
What to do?
Before you “buy” into BNPL, here are some tips to consider:
- Take a few moments to think, “is this a ‘want’ or a ‘need’?” before you make the purchase.
- Create a rule for yourself where you will wait 24 hours before deciding to make the purchase; many times, the excitement fades by then and you decide against it.
- Read the fine print. How many payments and what timeframe does it cover? What happens if you miss a payment? What are the fees?
- Know your budget. Your money should be spent on the items that are your highest priority. Make sure you know your priorities.
- Consider what would happen if an emergency came up. If your car breaks down but you’ve committed to four installment payments for a luxury handbag, would you still have enough money for car repairs?
- Be mindful of obscure retailers. If you’ve used BNPL and you need to return something, it may be more difficult or take longer to get your refund.
If you’re struggling to make ends meet, you’re not alone. The best way to take control is to take a hard look at your budget, and that might mean making some hard decisions about what you are spending your money on. Facing your budget and figuring out how to spend less than you make each month is a much healthier approach than relying on credit cards or BNPL. Do your future self a favor. If you need help getting started, please reach out.
