Buy Now, Pay Later - Always use it wisely
We’ve all been at the checkout, just about to drop our hard-earned cash on a pair of trainers, a takeaway or the next new addition to our wardrobe to find ourselves faced with the option to buy now, pay later in just a few clicks.
With Klarna, Clearpay and Zilch fast becoming house hold names in the UK, no doubt you’ll have heard stories about young people racking up tens of thousands in debts to these companies – sometimes without really knowing what they are doing.
Even still, everyone seems to be using it anyway. So, is using Buy Now, Pay Later (BNPL) ever a good idea? And what can we do, if anything, to help us use it to our advantage?
First, let’s dig into some of the benefits and features on offer with BNPL.
Buy Now, Pay Later companies usually allow their customers one of two options. When we think about BNPL, usually we think about splitting the cost of purchases into a few smaller chunks – paying a much smaller amount today and then the remainder in coming months. However, similarly to a traditional credit card, most companies also offer the option to pay nothing for up to 30 days, until the full amount becomes due. Often these options come with little to no interest payable.
Sounds good? Watch out – missing or making late repayments can quickly rack up expensive fees and begin accruing interest.
FREE UP CASHFLOW
Even the best monthly budget and savings intentions can be thrown off course by unexpected costs. You might well have the cash in your bank to pay for these, but doing so will leave you tight until next payday and likely to dip into other expensive credit sources. In these circumstances, using BNPL to spread a larger cost into more affordable chunks could help make sure there’s enough money kept aside to last the whole month.
AVOID LONG-TERM DEBT & HIGH INTEREST
In comparison to most credit products, interest rates on BNPL are usually much more favourable. This means you can minimise the amount of money which goes to waste paying back interest alone – particularly when the debt is spread over a longer period of time.
COMMITMENT TO A PAYMENT PLAN
Unlike credit cards that allow you to change the amount you pay each month (so long as it’s above the minimum!), with a BNPL purchase you must commit to a specific payment plan in advance. Although you might miss the flexibility, it also means there’s no temptation to reduce your repayments and free up extra cash for spending!
ACCESS EXCLUSIVE DEALS AND SAVINGS
Some BNPL companies, such as Zilch, offer exclusive savings and discounts at certain stores – even including some supermarkets! If you’re thinking of putting a purchase on BNPL, it’s worth shopping around to take advantage of the best offer to get the most for your money.
”MAKE SURE YOU PAY ON TIME EACH MONTH TO AVOID ANY EXTRA FEES OR CHARGES
EmanFounder OnestopSave
So, what should you consider before heading to the checkout?
We’ve put together a handy OneStopSave guide to help your thought process when deciding if Buy Now, Pay Later could be a wise way to make your purchase.
Is it a need or a want?
With BNPL cropping up on almost every online store, don’t fall into the trap of spending more than you usually would just because you don’t have to pay for it today. Learn how to tell the difference between things you need and things you only want. For example, splurging on a Deliveroo takeaway over a home cooked meal is a luxury and likely not a good use for BNPL. On the other hand, spreading the cost of a necessity like a replacement oven might be worth considering.
Is it an expensive item?
Ask yourself whether splitting this payment into chunks is really going to help you out – or are you just setting yourself up to fail in the future? For example, splitting the cost of an £1,200 sofa into three lots of £400 might not always make the purchase any more affordable when considering your budget over the coming months.
Are there better options for funding the purchase?
Particularly if the item is more expensive, it may be that shopping with the store directly could allow you to access a better finance deal – some even have no interest or very low interest offers over a longer period. Better still, ‘save first, buy later’! It might not feel as exciting initially, but for non-urgent luxuries like a new pair of trainers, it can be rewarding to wait a little longer before heading to the checkout with your hard earned cash in the bank!
Can you afford the repayments?
Most importantly, if you don’t think you will be able to afford the repayments then you shouldn’t enter into a finance agreement – BNPL or otherwise. If you are struggling to keep on top of your debts or afford your essentials each month, you can seek out free money advice at www.moneyhelper.org.uk or www.stepchange.org.
If you’ve made it all the way through the flow chart, it might be that this is a good opportunity for you to take advantage of a Buy Now, Pay Later to help manage your finances. Remember – don’t make it a regular habit and always keep on top of your repayments to avoid interest and fees.
This information is intended for editorial purposes only and not intended as a recommendation or financial advice