Pros and Cons of Buy Now, Pay Later

First Commerce Credit Union.

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Have you ever been shopping online and seen the option to get your items now and pay for them later? This option, known as “Buy Now, Pay Later,” (BNPL) is basically the old layaway plan in reverse. It’s a form of instant financing that allows consumers to make an initial payment, receive their item(s) upfront, and pay the remaining balance over time through regular installments. In recent years, Buy Now, Pay Later has become popular as it allows individuals and families to stretch their budget by spreading payments over time. While getting your items now and paying for them later may be an attractive option, there are a few things to keep in mind.

1. High Interest or Late Fees. In exchange for receiving your merchandise before you fully pay for it, some Buy Now, Pay Later programs may charge higher interest on the amount you finance and/or steeper late fee policies. A high interest rate, along with any late fees you may incur add to the overall cost of the item you are buying. Be sure to read the fine print before committing to any installment payment plan. Tip: Set up automatic payments right away to help you avoid possible late fees or missed payments.

2. Payment Plans and Terms Vary Between Lenders. Carefully review the terms on the lender’s website (typically a support or FAQ page). Be aware of their policy regarding disputed charges to understand what protection you have on purchases that are damaged or stolen. It’s important to understand the conditions and terms of the installment plan(s) you choose to use.

3. Does Not Help Build Your Credit Score. Since Buy Now, Pay Later programs are short-term lending, they are not considered in the overall calculation of your credit score. That means even if you make regular payments and pay off these short-term loans, it does not contribute to building a good credit score. Tip: By using a credit card, you can build a good credit score, which is important for your overall finances.

First Commerce offers Credit Score by SavvyMoney, a comprehensive Credit Score monitoring service available to members free in digital banking, that empowers members to understand and manage their credit score over time.

While Buy Now, Pay Later options can help you get the things you want now, be mindful of your budget constraints. Commit only to what you know you can comfortably afford to spend each month so you can pay off balances within a shorter amount of time.

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*Insured by NCUA. First Commerce does not provide tax, legal or accounting advice. The information on this page is for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your tax, legal or accounting advisor for further guidance.