BNPL — these four letters represent a growing trend taking the holidays by storm. Standing for Buy Now, Pay Later, BNPL does what it says on the tin. You receive your purchase immediately and pay it off in smaller amounts at a later date.
According to a consumer survey, nearly half of all shoppers (45%) will rely on BNPL for the holidays. Before you join their ranks, it’s important you understand their ins and outs first.
What is Buy Now, Pay Later?
Buy Now, Pay Later is a type of financing that lets you break down your shopping total into small, equal payments.
Most BNPL services break down your bill into four payments, although there are longer terms available. You usually have to make your first payment at checkout, and the rest you pay over the remaining time.
BNPL: A New Spin on an Old Borrowing Option
By using Buy Now, Pay Later financing, you’re practically borrowing an installment loan. But instead of agreeing to repay a personal loan, you promise to pay for the items in your cart.
Following this comparison is a good way to put BNPL financing into perspective. BNPL isn’t free money; you owe money to these companies just like a loan.
And like true personal loans or lines of credit, this kind of financing may apply interest and finance charges which you’ll cover in each installment.
These fees aren’t always a sure thing — some BNPL companies only charge the cost of your items. Others apply interest if you choose to repay what you over in more than the typical four payments.
Obviously, the addition of interest changes the cost of your items, so it’s important you check the fine print before you sign up.
Any legit BNPL service is like other financial institutions that offer personal loans or lines of credit. They should share this info on their site, just as you can find an online line of credit details from financial institutions on their websites.
How Does BNPL Financing Work?
If an online retailer offers BNPL financing, you’ll see it at the digital checkout listed with all the other payment options like credit cards and PayPal.
When you click on this option, you’ll have to fill out an application to get started. You might have to share your contact details, payment method, and social security number. You may even undergo a credit check.
What’s with the third degree?
Remember, instead of taking out a loan or putting your purchase on a line of credit, you owe a BNPL service the cost of your purchase. Since these BNPL services are giving you a cash advance of sorts, they’ll want to make sure you’re good for it.
Should You BNPL for the Holidays?
Now that you understand how BNPL shares a lot of similarities with loans and lines of credit, it isn’t going to be the perfect workaround for an expensive holiday season.
However, it can be helpful in situations where you need just a little more time to come up with the money.
Just don’t forget it will tie up your budget until you pay off what you owe. Like any other personal loan or line of credit, it only makes sense if you can afford its installments without interfering with your other bills.