You’ve likely heard of layaway – where you select an item at a store and then make regular payments toward it until it’s paid off and officially becomes yours.
Well now there’s a new such merchant program available – and chances are that you’ve had the option to use it on everything from online purchases to even restaurant meals. It’s called “buy now, pay later” or BNPL, and it’s basically a point-of-sale loan that splits any type of eligible purchase into manageable installments – many times without any interest to boot.
Many retailers are now offering BNPL, and then there’s also the option to take out a virtual card for such purposes as well. For example, if you used a BNPL card at a restaurant on a $200 meal that you didn’t want to charge or didn’t have the cash on hand to pay with, you could arrange to pay the meal back in $50 installments over the span of four to six weeks. And while this might seem like an easier and cheaper alternative than using a credit card to make larger purchases, it’s also important that you weigh the pros and cons of a BNPL card and buy now, pay later programs before you get too heavily involved. With that said, here’s a closer look at what you need to know:
Watch Out for Late Fees
Just as credit card companies hope that card members carry over balances from month to month so they can charge interest, BNPL card companies hope that consumers either miss payments or don’t pay off the amount in full by the established due date. When this happens, many BNPL card companies charge hefty late fees. Some may even charge a one-time transaction fee.
Some BNPL Card Companies Charge Interest
While it’s not unusual to find a BNPL card without any interest rates, some companies still do – and these interest rates have the potential to be as much as 30 percent. That’s far more than the average credit card interest rate of 16.16 percent.
BNPL Loans Might Hurt Your Credit Score
Some companies report consumer data to the credit bureaus, and this has the potential to have an impact on your credit score. For example, BNPL loans may decrease your average account age due to the fact that they’re short-term loans. This can put a dent in your score.
You Don’t Have the Opportunity to Earn Rewards
One of the nice things about today’s credit cards is that almost all of them come with some sort of rewards potential or cash back earnings, meaning what you charge will work a little harder for you. You won’t get those types of rewards options with a BNPL card.
BNPL loans are convenient and right when used under the right circumstances. Just be sure that you fully understand the terms and conditions before you use it.