Are Buy Now Pay Later Options a Good Idea?

Photo by Erik Mclean on Unsplash

Is it really a good option?

Before you click the buy-now-pay-later option enticing you to purchase a big-ticket item under the ruse that paying for it will be far more manageable because of the low payment options, examine what you’re getting into.

Although the advertised amount you’ll pay is usually interest-free, buy now pay later apps don’t make money by allowing you to pay off $200 in six weeks. Instead, like any other credit provider, they make money by charging interest and other admin and late fees, which are usually higher than most providers.

For example, you may want to buy a $200 coffee table. A BNPL app suggests that you only pay $50 upfront and then $50 every other week for the next six weeks, interest-free. What the app doesn’t reveal is what happens if you pay late, miss a payment, or need to extend the six weeks. In these instances, you pay extortionate interest rates, late fees, and penalties. The app will also report your failures to the credit bureaus.

For this reason, a credit card is better. Most credit cards offer an interest-free period, which means if you pay off the balance within the grace period –– which is usually longer than BNPL apps – you won’t pay interest. 

However, most credit card providers are also more thorough in their credit assessment and, if you pay religiously, can help you build good credit. 

That’s not the case with BNPL apps. These apps don’t report good behavior to credit bureaus, only bad actions, effectively ravishing your credit score.

So, next time the BNPL app pops up, don’t click.

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