You should ditch credit cards and use ‘Buy Now, Pay Later’ plans instead.

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There are pros and cons to going that route.

Main idea

  • “Buy now, pay later” plans allow you to pay for additional purchases.
  • While they offer advantages over credit cards, there are disadvantages to consider.
  • BNPL plans have a limited repayment period and do not offer rewards that credit cards do.

If you have heard more about it “buy now, pay last” plan, or BNPL’s plans, there is a reason. These plans have become the most popular choice among consumers in the last two years because they offer special benefits. credit card do not.

For one thing, with a BNPL plan, you can avoid interest on your purchases just by sticking to a payment agreement and making your installment payments on time. You can also qualify for a BNPL plan at the same time, instead of apply for a new credit card and wait for approval.

But should BNPL’s plans replace credit cards? Not so.

It is not a perfect solution

BNPL’s plans work like a mortgage. You make a down payment on what you’re buying, and then you pay off the rest of your purchase over time.

There is only one big difference between BNPL plans and mortgage and other payday loans. With a BNPL plan, you are usually required to pay off your purchase within a short period of time – typically, 12 weeks or less. And it doesn’t give you much wiggle room.

Let’s say your washing machine breaks and you need a new one, but you can’t plunk down $900 right away. If you pay for that washing machine on a credit card and don’t pay your balance when your bill is due, you will start compound interest in that balance. If you use a BNPL plan to buy a washing machine and pay within three months (or as long as your BNPL plan takes), you won’t accumulate an interest.

But if you can’t change the price of a $900 washing machine today, chances are, you won’t be able to come close to the money in the next number of weeks. So what ends up happening is that you fall behind on your BNPL agreement and start piling up interest and charges.

Also, if you don’t follow a BNPL plan, it will be reported as a negative activity on your credit report, which is the same way you will be charged for late credit card payments. . On the other hand, if you make small payments on your debt, you will be considered to have paid on time.

You miss out on various benefits

Not only can BNPL’s plans be jeopardized, but these agreements prevent you from collecting rewards or refund on purchases such as credit cards. So if you’re buying something as important as a washing machine, you better get something out of it.

All told, BNPL’s plans can be a good solution in limited circumstances, but they are not ideal. And they shouldn’t replace the swipe of a credit card.

If you are buying something that you are really sure you can pay off in two or three months and you want to avoid credit card interest, then a BNPL plan is the way to go. better to go. But if you sign up for one of these deals, be sure to first comb through the details carefully so you know what you’re getting into and there are no surprises.

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