If you haven't shopped online, you may know someone who has. People often find the convenience of shopping online from anywhere at any time irresistible, and with the rise of buy now pay later plans, the temptation can be even harder to ignore.
Buy now, pay later plans allow consumers to gain immediate access to a product with little to no cost at the time of purchase. They work like a loan, with a soft credit check, where the cost is spread into equal payments over a set timeframe. These programs normally require an initial payment at the time of purchase and can often come with a 0% interest rate.
According to a 2022 study by DebtHammer, 45% of Americans have signed up for at least one buy-now-pay-later plan, and more than 50% of those consumers are simultaneously making payments on multiple purchases. Although these plans can be tempting, it's important to compare the pros and cons before deciding to take advantage.
Pros of Buy Now Pay Later Plans
Immediate Access
These plans can be a great option for consumers seeking immediate access to a product or service with minimal upfront costs. This opens doors to things you may not otherwise be able to purchase.
Flexible Payment Plans and Terms
These plans offer flexibility in payment terms, including timeframes and payment amounts. These pre-determined plans can help customers plan ahead and ensure their payments are made on time.
Wide Availability for Consumers
Buy now, pay later plans are accessible to most consumers. A 2021 study by Tighe found that these payment plans account for 2% of online purchases in the USA. Those with limited or low credit can also use these short-term loans. Additionally, interest rates are often low, with many plans offering a 0% rate.
Cons of Buy Now Pay Later Plans
Payments Can be Hard to Track
Although the flexibility of these plans can be positive, it cannot be easy to keep track of your payment plans, especially if you have more than one plan at a time. Missing or falling behind on payments can result in late fees and may even damage your credit score. If you do take advantage of these plans, be sure to stay on track. We recommend utilizing auto pay and calendar reminders to ensure this convenient option is not a financial burden.
No Rewards or Cash Back on Purchases
Buy now, pay later plans act similarly to credit cards but without the perks. If you have good credit, you might get more value from a rewards credit card, where you can earn points or cash back on your purchases. It's worth comparing your options to ensure your money works for you.
Availability can Encourage Impulse Spending.
Although the wide availability of these plans can be a pro, they can quickly result in financial overexertion if overused. Think before you buy, and ensure you only use these plans when necessary. We put together five tips for breaking impulse spending habits, which is an excellent resource if you're looking for ideas to curb your spending.
Alternatives to Buy Now Pay Later Plans
These plans can be convenient but remember they're not your only option! Talk to your financial institution to learn about all the options available when making a more significant or special occasion purchase. Here at Vibe, we offer products such as our High-Yield Savings, Vibe Visa® CashRewards or Platinum Credit Card, and our Cash Back and High-Yield Checking Accounts to make your dreams a reality. Call us at 248-735-9500 or visit your local branch for more information.
Buy now, pay later plans can be a helpful tool when used wisely, offering flexibility and immediate access to purchases. However, it's essential to be mindful of your spending habits and explore other options that might work better for you, like savings or rewards credit cards. By keeping your budget in check and thinking ahead, you can make the best financial choices for your situation.
