4 Things to Make Before Choosing “Buy Now, Pay Later”
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- âBuy now, pay laterâ can be very tempting for expensive vacation purchases, but it also has disadvantages.
- It is critical to make sure that you can actually make the payments. It could even affect your credit score.
- If you use your credit card instead, you may also receive points and rewards that you would not otherwise receive.
- Read more at Personal Finance Insider.
At the end of each year, I have trouble staying on my budget. There are a lot of Christmas purchases that I think I need to buy for the people in my life and I often wonder how to afford it.
While I try to make a gift list as early as possible in the season and set a price cap for each person’s gift, those limits can be difficult to meet.
Since my Christmas shopping has been relocating mostly online recently, I’ve been tempted to take advantage of those “buy now, pay later” services that some ecommerce stores offer at checkout.
It works so that you pay a small installment up front and then have future payments (which may or may not include interest) over a period of time.
Before saying yes to these services, I decided to chat with financial advisors to see if this was a smart option or an expensive mistake and see what suggestions they had on how to use “buy now, pay later”.
1. Make sure you understand the true cost of the item
Financial advisor Greg Wilson recommends paying attention and taking the time to fully understand the actual price of the item and wondering whether or not it is actually worth it for you.
“This is important because the seller understands how they built the pricing structure,” said Wilson. “Interest is embedded one way or another.”
2. Make sure you have a plan to repay it
While these services make it easy for you to secure the item you want now, Dylan Orosz, a CPA, recommends creating a plan to get yourself paid for what you want to buy.
“Don’t let the options trick you into spending too much,” said Orosz. “You have to spend within your budget, whether you pay now or later.”
3. Think about what if you can’t pay later
Even if you are certain that in the near future you will have the funds to pay off the debt on the item you want, there is always the possibility that something will happen and your financial situation will change.
Therefore financial planner Brittney Castro advises people to ensure that they understand the consequences of using a Pay Later service and that they are willing to make payments for the life of the plan.
“Missing a payment can incur additional charges and even negatively affect your creditworthiness, as defaults and defaults are usually reported to credit bureaus,” Castro said.
4. Consider using a credit card first
Leslie Tayne, a finance attorney, suggests considering using a credit card instead of “buy now, pay later” services.
“Retail installment loans can be worthwhile if you pay off the goods on time and don’t accrue interest,” said Tayne. “If you are a disciplined budgeter, these loans can help you get what you need and want without a credit card.”
However, she added that there might be some benefits to having a credit card instead – especially if you can earn rewards or points.
“Also, your credit card may come with consumer protections like extended return policies that your point-of-sale loan doesn’t offer,” added Tayne.
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