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8 costly mistakes people make with buy now, pay later plans

8 costly mistakes people make with buy now, pay later plans

Buy now, pay later, or BNPL financing is a relatively recent but increasingly popular payment method. It allows people to purchase anything they want while a BNPL-partnered company pays for it, and the consumer can later pay back the amount in installments. BNPL differs from credit card payments because it does not have interest or credit checks, and the repayment can be made within a few weeks.

Mistakes people make with BNPL
While BNPL sounds like an excellent payment option on paper, it has many pitfalls, especially if one makes the following mistakes while dealing with it:

1. Ignoring the fine print
Signing up for a BNPL plan without thoroughly reading the fine print is a grave mistake. Even though there may be no interest, missing BNPL payments can incur late fees and hurt one’s credit score. So, one should read the BNPL plan carefully and understand all the implications, including what happens if one faces problems during purchases, how often the payments are due, how the plan operates, and any penalties.

2. Not learning about the potential pitfalls
Many issues may crop up while making purchases, and one should know the next action plan while signing up for BNPL. For example, it’s important to know how one’s BNPL company handles purchase protection in case one makes an online payment using their service and the parcel never shows up. One can dispute the charges with a credit card, but with BNPL, it might be different. So it’s important to understand how a company retrieves money in cases of such issues.

3. Using BNPL for making reckless purchases
Anything that involves borrowing money from a third party comes with a certain level of risk. BNPL is not a substitute for overextending one’s finances and buying things impulsively without calculating how one will comfortably pay back the price promptly. This payment method is best utilized for larger and anticipated purchases, such as a work laptop or a major appliance, for which one may not have immediate funds. But it’s advisable to refrain from using BNPL for impulse buys like clothing or leisure electronics. One can also create a budget and stick to it.

4. Committing to too many loans at once
BNPL was exclusively online earlier, but thanks to its rapidly growing popularity, major retailers offline are accepting the same. This also means one may be tempted to buy lots of stuff, but it’s easy to get confused about how many payments one has and when they are due. With BNPL, one’s also more likely to mount multiple loans at a time since the payment method is accepted in almost all places, from grocery stores to restaurants, and it can also be difficult to keep track of them all. Losing track means expenses can quickly add up and spiral into a financial crisis. The best practice is to limit oneself to one or two manageable BNPLs at a time and not go for the next one until the previous ones are repaid.

5. Missing or delaying repayments
Most of the time, missed BNPL repayments are a genuine oversight due to busy schedules. This is more likely to happen with BNPL since the repayment is weekly or biweekly, as opposed to the other regular bills that are typically due monthly. However, irregular or missed payments mean one incurs unexpected penalties and pays more for the items than their market value. It’s important to read the fee structure of any BNPL lender and be aware of timely payments. One can avoid this by automating payments or setting reminders, which can help ensure timely payments.

6. Thinking only about installments
It’s easy with BNPL to only consider the installment cost of the items and ignore the total expense that one will incur. The installments can give the illusion of affordability, leading to overspending. So, one should know how much each item costs, keep track of all the items bought through pay-now and pay-later arrangements, and diligently monitor repayment due dates.

7. Failing to consider rewards
While most credit cards charge interest, they also offer rewards like purchase protection, cashback, or airline miles, making everyday purchases more affordable. Over time, these rewards accumulate and can add up to significant savings. One should remember that with the BNPL option, one must forgo such rewards altogether.

8. Not thinking about returns
Returning a BNPL purchase can be lengthy, time-consuming, and challenging. Unlike credit card transactions, where refunds are usually straightforward, with BNPL, the merchant first approves the return and then refunds it to the BNPL lender. The lender then processes the return and reimburses the purchaser for the cost. Meanwhile, one must adhere to the BNPL repayment schedule or risk facing late fees and penalties. Such issues can also prolong the return process and take months to resolve.

So even if ‘Buy Now, Pay Later’ sounds convenient and flexible, it comes with its own risks and financial responsibilities. It’s best to be vigilant about how they work, avoid these pitfalls, and make the most of such modern technological conveniences to avoid getting on the wrong side.

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