Is Buy Now, Pay Later A Good Idea? with Hector & Kylie
On this episode of Financially Naked: Stories from The Financial Gym, we'll be taking a closer look at Buy Now, Pay Later (BNPL) payment options. In the convenience and instant gratification age, these payment options have become more popular. BNPL options allow consumers to purchase products and services instantly while spreading out the payments over time. On the surface, they seem like a great option, but as with any financial tool, the pros and cons must be considered.
To have this conversation, two of our Certified Financial Trainers, Hector Lopez and Kylie Lipinksi, are here to explore how these apps work, their benefits, and the potential downsides you'll want to consider before using BNPL apps. Analyzing all aspects of these tools is crucial to make informed decisions about our financial well-being.
Podcast Notes
Buy Now, Pay Later options have been around for years but have become more popular recently. A combination of fintech and consumer preferences leading the surge.
Some of the most popular are Afterpay, Affirm, Klarna, and PayPal Credit. Instead of paying for an item or service in full, you can pay in fixed installments over time.
These payment plans are technically liabilities. They’re a form of credit. They’re an interesting financial tool because all credit cards are technically a form of ‘buy now, pay later,’ but there are some key differences between BNPL and traditional credit cards.
How do Buy Now, Pay Later apps work?
When you’re shopping and arrive at the checkout, these appear as payment options. Instead of paying for an item or service in full, you have the option to pay in installments over time.
BNPL apps often offer interest-free installment plans, allowing users to divide their purchase amounts into equal payments over a set period. You can purchase the item or service now without paying for it in full until later.
While similar to a credit card, another form of ‘buy now, pay later,’ there are some main differences. Credit cards usually require people to make minimum monthly payments, with interest occurring on anything left over.
What are the pros and cons of BNPL?
While credit cards are more open-ended with a limit where you can keep adding, BNPL payment options are for one specific item or service, and the payments are set over a period of time. They’re a shorter commitment than a credit card.
Getting approved for BNPL programs is simpler than traditional credit cards, making them more accessible to people with no credit or bad credit.
Depending on the item, BNPL may be the better option mathematically. Even if the math is better, it may not be the best decision for your financial health.
Missing payments can be detrimental. Depending on the terms, they can send you to collections over missing a payment.
Thoughts from a trainer, using BNPL responsibly.
These services can be appealing, but it’s important to know yourself. Do you struggle with credit card debt or overspending? If so, these may not be the best option for you.
Buy Now, Pay Later is the opposite of layaway.
When using layaway, a store would hold an item for you while you paid for it over time. You would get it once it was paid. BNPL allows you to have the thing now while delaying the more painful part, paying for the item.
Companies understand our human behavior and know that the more they remove friction, the more money consumers spend. They aim to remove that friction, and BNPL is one result. Other examples include one-click purchasing or having your cards saved with websites.
Sometimes saying no to ourselves sucks, and these companies know that about us. They want to minimize the pain of paying full price for the purchase by allowing you to break them up. It’s a way to convince ourselves we can afford things even if we cannot.
These can be a good tool if used sparingly but can be a slippery slope if you already have credit card debt and add additional debt through these programs.
Comment start Drop us a comment and let us know if you have successfully navigated BNPL payment plans, have your own gripes with these types of companies or learned something new today! You can also send an email to trainerpodcast@fingyms.com.
If you want to work with a Certified Financial Trainer to help navigate your finances, schedule a free warm-up call today!
Resources
Meet The Trainers
Hector Lopez, Level 2 Certified Financial Trainer