How to Use ‘Buy Now Pay Later’ Loans For Shopping This Holiday

• ‘Buy Now Pay Later’ Loans are becoming mainstream as big retailers like Amazon, Walmart and Target partnering with fintechs firms such as Affirm to offer BNPL facilities.
• Consider such things as the affordability of your purchases, dispute resolution processes, late fees, interest rate risks and credit score implications before using a BNPL loan.

The holiday season has just begun and there are black Friday offers everywhere! You probably want to make holiday purchases in advance but you don’t know where to get the money. Shoppers are increasingly turning to different types of personal loans to pay for holiday shopping. Among these are the ‘buy now pay later’ loans because such financial products allow borrowers to spit the cost of their holiday purchases into installment payments, similar to those for installment loans , but these are usually due every fortnight.

Data from the Morning Consult survey reveals that 21% of shoppers are expected to use the ‘buy now pay later’ (BNPL) loans for their 2021 holiday shopping. The Survey also found that BNLP was used in about $100 billion worth of purchases last year and it continues to increase rapidly. With respect to usage, BNLP is continuously becoming mainstream with retailers such as Walmart, Amazon and Target having been caught up in the trend. Recent developments such as Affirm partnering with Amazon and Target add credence and scale BNPLs.

Even though BNPL loans are good choices for holiday spending because they allow you to split your holiday spending over time, you should use them cautiously. This article outlines ways you can use safely use BNPL for your holiday shopping.

Things Consider When Using ‘Buy Now Pay Later’ Loans

1. Avoid Overspending: Note that you might be prone to overspending with BNPL loans. You need to be smart about your BNPL usage and only use it when you are sure you will get enough money to pay off the balance. Keep it mind that it is easy to overspend when using a ‘buy now pay later’ loan. A recent study found that 66% of shoppers using BNLP loans said they spent more than they would have had they paid cash for their purchases.

It is believed that methods of payments like payday and BNPL loans, encourage overspending since the costs are less noticeable to the consumers. This is because consumers receive a bill long after they make purchases. A such, they may end up spending more at the checkout point because the true cost of their purchases does not hit them until later on.

Therefore, if you really need to use BNPL loans to buy that PS 5 for your teenage son for Christmas, ensure you have an idea of how much each installment payment will be, the interest rate on the loan, when each installment is due and whether you can afford the total value of the purchase you are making.

2. Impact On Your Credit Score: If you are unable to pay your BNPL loan installments, it might negatively affect you by decreasing your score. This might happen regardless of whether of whether you are setting them in full or on time. Therefore, you need to be cautious about the effect these loans could have on your credit report.

To avoid this, you are advised to go for a BNPL facility that doesn’t report to the credit bureau. A good example of such a provider is Afterpay who offer a six-week BNPL loan option at 0% interest rate, and does not report to the credit bureau.

Therefore, do your own research and see if the lender is going to do a credit check and whether it reports to the bureaus before signing up for a BNPL loan.

3. Channels of dispute resolutions: “Buy now pay later” loan is a relatively new financing method with unclear consumer protection guidelines and government regulations in place that there are for credit cards or debit cards. Major BNPL providers like Afterpay and Affirm have developed their own return policies and dispute protection channels. This can, however, be confusing to consumers regarding who to contact in the process.

 

Therefore, before taking up a BNPL loan, make sure that you understand the channels of dispute resolution. For example, whom do you contact when you need to return or have an issue with a product you purchased with a BNPL loan.

Bottom Line

Buy now pay later loans might come I hand to help you finance your holiday shopping this year. While these loan facilities are convenient and easy to use, you should clearly understand how they operate before signing up.

Note that people tend to overspend during the holiday season. Thus, before you use BNPL loan to make these purchases, you need to know if can afford the item you mare buying and whether you will be able to pay for it fully in the near future. You should also pay close attention to the dispute resolution process and your provider’s return policy, whether they run a credit check, do they report to the credit bureaus and related costs such as late fees and interest rates.