In recent years, Buy Now, Pay Later (BNPL) apps have become very popular. And they’re exactly as they sound: they allow people to buy things without paying the full amount upfront right away.
Sounds great, right? Sure. But what are the actual financial benefits — or potential downsides — of using these apps? We dive into it, below.
First: How Do Buy Now, Pay Later Apps Actually Work?
As we said, these apps are just as they sound. When you choose to buy an item through one of these payment apps, the total amount of your bill is split into installments and the purchase is paid off over an agreed-upon period.
This way of purchasing things allows people to buy the things they want or need. Some examples of Buy Now, Pay Later Apps are:
Usually, people opt to use these apps for higher-priced purchases. However, more recently, people have also started using them to buy the necessities like food and gas. More are depending on the ‘gig economy’ for an income.
The cost of living is rising but wages aren’t. Many have less financial security. Now, these apps are the only way some people can afford to buy the basics.
The Potential Hazards of Buy Now, Pay Later apps
Naturally, there has been some controversy around Buy Now, Pay Later apps.
Each platform has different terms and conditions. With some of the app options, interest is attached to each payment, leaving users drowning in debt. In the U.K., Klarna is now sharing their data of missed payments to credit reference agencies. This could affect the ability to get a credit card, personal loan, or mortgage.
Concerns are being raised about people getting into more debt than they can handle.
Learn To Use These Apps The Right Way
It doesn’t have to be all bad — but it’s important to be aware that these apps can either be helpful from time to time or wrack up your debt. That’s why it’s important to be able to use them in the right way.
How To Reap The Financial Benefits
1. Look at the terms and conditions
This is the big one. Each app will be different in its terms and conditions. The specific things that could help you are
- Interest. Some BNPL apps will have interest-free installments. Others will have interest attached. This is important and could affect how much you have to pay for each installment.
- Late fees. Some of these apps have late fees if do not pay on time. These late fees can vary and be costly. If there is a chance you might pay late due to unforeseen circumstances, then this is important.
- Additionally monthly charges. For example, some may charge you to reschedule your payments.
- The future effects of a missed payment. SomeBNPL apps may affect your credit score if you cannot pay on time. This could have consequences for your future financial records. it’s important to if the agency will share your records with credit agencies.
2. Look beyond the apps
The apps are a tool to help you buy, and ultimately you make the decision! So it’s important to consider:
- Need. Getting something that you want at this exact moment isn’t worth messing you your credit score for the future. Neither is paying triple the amount of the original price due to the interest. If you can wait and pay it off in two or three installments, it might be worth saving for that time and then buying it outright.
- Shop around. Shopping around is important. By doing this, you might discover that you may be able to pay it off in installments but it could be half the price somewhere else. Think about if there is a holiday soon: Black Friday or Boxing day. Many shops reduce their prices around those times and other major holidays. If you haven’t already, research into the item could prove more cost-effective than paying in installments.
