Risks Of Using Buy Now Pay Later Loans For Your Black Friday Shopping

Buy now, pay later (BNPL) providers allow users to break up larger purchases into short-term installments. They are almost similar to payment schedules for installment loans , but these are usually due every fortnight.

The holiday season has just begun and there are black Friday offers everywhere. You are may be planning to use a buy now, pay later loans, but there are things you should know before you sign up for one.

Holiday purchases this year are expected to be very expensive which is why many Americans personal loan facilities such as instant online payday loans, cash loans and BNPL loans to finance their holiday purchases. The increasing demand for long-term loans among shoppers has been the driving force behind the rise of BNPLs.

Buy now, pay later service providers such as Afterpay, Affirm and Quadpay offer you this funding option when shopping at major online retailers like Walmart and Amazon.

Data from the Marcus by Goldman Sachs survey reveals that about 17% Americans plan to use BNLP services to pay for their holiday shopping. The same survey revealed that this payment option is preferred by younger shoppers i.e. 28% of Generation Z consumers and 27% of millennials are planning to us it this season.

However, before you decide to choose this financing option this Black Friday, it is important that you know the risks associated with it. Perform a cost benefit analysis by weighing the benefits against drawbacks of using such a financing option, and consider alternatives such as personal loans and credit cards.

Risks of Using Buy Now Pay Later Financing

BNLP deals can be attractive. For example, instead of paying a lump-sum of $500 payment upfront for the expensive Christmas decorations, you may be able to pay $100 installments every two weeks until the purchase is fully paid. These service providers do not usually carry out a credit inquiry and some do not even charge fees or interests.

However, BNLP financing can be costly and risky as discussed below:

• Costly late fees: Missing scheduled payments can result in pricey late fees of up to 25% of the balance, depending on the lender. Affirm charges interest rates that are as high as 30% APR.
• Impact On Your Credit Score: Failure to pay the balance in time can get you reported to the credit bureaus as a defaulter. This can harm your credit score and make it hard for you to access credit facilities in future.

Therefore, you are advised to read the terms and conditions and look for any hidden fees before signing up for any BNLP financing.