What to Know Before Using Buy Now, Pay Later for Holiday Shopping

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  • 45% of consumers will use Buy Now, Pay Later for holiday gifts, and the average consumer will charge their credit card $663.
  • Financial influencer Humphrey Yang says there are four things you need to know before going into debt for gifts.
  • Before using BNPL, know what the late fees and interest rates are.

According to a recent Cardify survey, 45% of consumers will use BNPL (Buy Now, Pay Later) to pay for their holiday shopping this year. BNPL is an online shopping feature that allows you to pay for a purchase in small amounts over time.

Companies like To affirm, After-paymentand Klarna partner with businesses to allow customers to buy the item now and pay for it in installments later. Usually you have to pay about 25% of the purchase price up front and then make several additional interest-free payments on the item later. It only takes seconds to find out if you’re approved for the loan, and you don’t need a high credit score to be approved.

“Buy now, pay later might be a good option if you really have an expensive gift that you know you can pay for over time,” says the personal finance influencer Humphrey Yangwhich is currently in partnership with Checking Amex Rewards. “But if it was me and I didn’t have that money, I would probably try to find an alternative gift instead of using BNPL.”

Here are three things you need to know before buying an expensive Christmas gift using BNPL.

1. Understand your interest rate

Yang says the key to using BNPL is understanding the terms of the agreement, starting with interest rates.

If you make your payments on time, you will generally not be charged interest for using BNPL. But if you delay payments beyond the original agreement, you may be charged an annual interest rate of up to 30%. On the other hand, the average credit card interest rate is only 18.43%.

Yang said, “It gets people in trouble because the terms may be favorable at first, but the longer you wait to pay it back, the longer you won’t get the best interest rate.”

2. Check late fees

Here are the late fees for some of BNPL’s popular post services:

Even if a BNPL service does not have late fees, late payments can still impact your credit score.

Yang says, “Each BNPL program has different kinds of conditions. People want something now, and they’re not good with their money later. These services exist because they’re profitable.” The best way to protect yourself, says Yang, is to review the terms of the agreement carefully before registering.

3. Determine whether or not you can make payments later

What you really need to know about BNPL Before you add that expensive gift to your cart, it’s a question of whether future payments will fit into your budget. For example, if you’re making a $2,000 purchase that will be split into four $500 payments, review your budget to see if you can reasonably afford an additional $500 monthly expense.

Yang said, “I always tell my friends, ‘If you can’t afford it, don’t buy it.’ But it’s really hard to tell a single mom or a single dad who is trying to buy something special for their son or daughter, so I have the flip side as well. It is difficult because these parents want to buy presents for their children and sometimes the BNPL conditions are not favorable, especially if you do not have the time or if you do not speak the language.


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