Temptation strikes every time you open a new internet browser window. There is always something new to buy: the latest pair of shoes, a new handbag or state-of-the-art luggage for an upcoming trip.
However, each new item you purchase has a sneaky way of diminishing your bank account balance. Before you know it, the amount in your checking account has dwindled down to nothing – or next to it.
Within the last year, an option has emerged on many shopping sites, an offer to buy now and pay later. While this might seem like a great way to turn your shopping temptations into reality, you should keep a few things in mind before you say yes.
How Much Is the Interest Rate?
Quite a few companies offer buy now, pay later services. Some of the most popular are Affirm, Afterpay and Zebit. You may recognize these names as your favorite shopping sites. Sure, the idea of buying things you want now and paying for them in installment payments sounds amazing, but there is a catch.
The first thing to figure out is what interest rate you’ll be charged for using the buy now, pay later feature. Some companies offer 0 percent, which is what you want, while other companies will charge an interest rate to use their services.
There are a few things to consider:
- If you are choosing between a buy now, pay later feature or charging the purchase on your credit card, it would only make sense to compare both interest rates. Most people have no idea what their credit card interest rates are. Hint: If this is you, take some time to do your research now before you are tempted to make a purchase.
- If the interest rate is lower on the buy now, pay later feature vs. your credit card, you could argue that it makes more sense to use this feature.
- If you cannot afford the purchase in the first place, you have some thinking to do. Do you really need this item now? Is there a better way to save up to pay for this item all at once?
- If you can afford this item, but you would rather use the buy now, pay later feature to spread out your payments, knowing the interest rate is key to making a sound money decision.
How Many Payments Do I Have to Make?
Each buy now, pay later company will have a different payment plan. For example, Afterpay sets up four equal installment payments. These payment plans are non-negotiable and when you agree to a buy now, pay later service, you agree to these terms.
Therefore, it makes sense to double and triple check your bank account to ensure that you will be able to make those payments. A good tip is to move the money for your second payment out of your bank account and into your savings account, so you can easily move the money back in before the due date. With most companies, you will make your first installment payment either at the time of check-out or within a month of the purchase date.
In other words, yes, you should read the fine print to know exactly what you are signing up for.
What Happens if I Skip a Payment?
Skipping a payment, whether on your credit card, a bill or a buy now, pay later installment plan, is usually not good news for your credit score. Some companies even impose a hefty late fee, which can often be a larger amount then your installment payment.
Hint: Most companies will have a Q&A section on their websites that have answers to questions like these. However, if you get in a situation where you know your payment will be late, contact the company ASAP to see if you can work out a payment schedule that is doable for you.
Buy now, pay later services are a great way to leverage your cash and avoid paying for your purchase in a one-time payment. However, it is very easy to get in over your head. Always make sure you can make the payments and use a bit of caution when you make multiple purchases.