Buy now, pay later (BNPL) is a quick payment method that allows users to purchase products or services without paying for them in real-time. The lending BNPL-partnered company covers the cost at the time of purchase, and the user then repays the amount in installments to the company over the next few pre-determined months.
While the BNPL scheme sounds like an ideal method of financing, it has its pitfalls. Making mistakes while dealing with it can quickly add up, costing more than initially anticipated, and spiral one into a financial pit. Here are some common mistakes to avoid:
Not reading the terms and conditions
The BNPL schemes have specific terms and conditions, and skipping the details before signing up can damage the pocket. For example, even though BNPL has no interest, one may incur late fees in case of missed or delayed payments, which can also affect one’s credit score. Therefore, it’s crucial to read the BNPL’s fine print thoroughly.
Overusing BNPL schemes
Using services like BNPL to make impulse purchases is always tempting since it comes with no upfront cost. This can often lead people to overextend their finances. To avoid this situation, one should utilize BNPL mindfully to make valuable and anticipated purchases like a work laptop or household appliances. It’s best to leave out impulsive buys like clothing or leisure gadgets or set a budget for them separately to manage finances better.
Not knowing BNPL limitations
Another issue is that people may look at the bright side and forget to adhere to the limitations of BNPL. For example, the plans do not offer purchase protection the way a credit card company might. Purchase protection is important when one makes an online payment, but the parcel doesn’t arrive. One should know how one’s BNPL company handles or retrieves the money in case of such issues.
Taking too many loans
Thanks to its popularity and convenience, many common retail stores like groceries or restaurants also allow BNPL. Therefore, because of its accessibilty and ease of use, many tend to use it for all purchases. However, taking too many loans can make it difficult to keep track, causing issues like missed or delayed payments or confusion regarding due dates. Also, BNPL installments are usually weekly or bi-weekly, unlike regular monthly bills. This can further add to the confusion. Therefore, it’s best to take one or two BNPL loans at a time and opt for another when the previous ones are repaid.
