When checking out at your favorite online store, you may have seen the option to “Buy Now Pay Later.” Buy now pay later (BNPL) programs are becoming more common as retailers partner with companies to provide new payment options. In fact, according to TransUnion’s latest Consumer Pulse study, over one-third of all consumers have used a BNPL service in the last year.
If there’s a product you want, but find it would be easier financially to spread the payments out, this could be an attractive offer. But before you buy, it’s a good idea to learn more about how these programs work. Here are five things to keep in mind before using a BNPL service:
1. Understand the payment options and terms
BNPL companies tend to offer multiple options and terms for your purchase. For example, several BNPL platforms feature the ability to split your cost into four payments due every two weeks. If you make all the payments on time and in full, you may not pay any fees or interest.
Some companies also offer longer-term loans, which can range from 3 – 36 months. Depending on the service you use, these loans may include interest charges in addition to the purchase price. Be sure to read up on the payment details and terms before using a Buy Now Pay Later or similar service so you know what to expect.
2. Check for any fees or penalties
Before making your purchase, you’ll want to understand if there are any other fees you may run into. For example, some BNPL companies charge late payment fees. You’ll also want to know if there are penalties for missing a payment or failing to pay completely.
Some BNPL companies may send the unpaid debt to collections and ban customers from using their service again. Collections can have a significant impact on your credit health. Make sure to keep careful track of your due dates, as you would with any type of loan.
3. Be sure your card will work with the service
Typically, you’ll connect your debit card, credit card or checking account to the BNPL program app or website to complete the transaction. However, not all credit cards may work with your Buy Now Pay Later service of choice. It’s worth confirming ahead of time to avoid any delays with your purchase.
4. Read up on the returns policy
It’s also useful to know the return policy for the product you’re purchasing and the BNPL service you plan to use. Even if you return an item to the merchant where you bought it, you may still have to continue paying your loan until the return is processed. How returns or refunds impact your remaining payments may vary among companies. Much of this information can be found in your loan terms documents and on the company’s FAQ page.
5. Keep your budget in mind
If you decide to use a Buy Now Pay Later program to finance your next purchase, it’s worth taking a few moments to fully understand the terms and conditions, as discussed above. Of course, it’s always important to be mindful of your budget and long-term financial goals.
Breaking a lump sum into frequent, smaller payments may make certain purchases seem more affordable. Just be careful to not fall into the trap of overspending. When used responsibly, BNPL can be another tool to help you achieve your financial goals.
Similar to BNPL, you may not be charged interest when using a credit card if you pay the balance before the due date. If you pay the minimum, however, you will pay the interest fee. Learn more about the difference between paying the balance vs. paying the minimum on your credit card in our blog post.