The rise of “Buy now, pay later” plans has made them a popular choice at checkout, whether in-store or online. Options like the pay-in-four plan are attractive because they usually don’t involve interest charges or require a hard credit check that could impact your credit score.
While these plans may seem like just another payment method alongside debit or credit, they are essentially installment loans that break down your purchase into multiple payments, with the first one typically due at the time of purchase. According to the latest rule from the Consumer Financial Protection Bureau as of May 2024, buy now, pay later lenders are considered credit card providers and must offer similar legal protections and rights as traditional credit cards, such as the ability to receive a refund for returned items.
However, it’s important to be cautious with these plans as using them frequently as a form of credit can lead to overextension. Here are some tips on how to use buy now, pay later responsibly:
Aim to use it strategically
Before opting for a buy now, pay later plan, ensure that you have the funds to pay it off according to the terms. Review your budget to determine if the purchase is truly affordable without relying on these plans for essential expenses. It’s advisable to have an emergency fund to cover unexpected costs and avoid relying solely on buy now, pay later options.
Trent Graham, a specialist at GreenPath, suggests evaluating your budget and exploring ways to balance your income and expenses without resorting to credit. Being proactive in managing your finances can help prevent financial strain in the future.
It’s recommended to leave room in your budget for unexpected expenses and to maintain an emergency fund for financial stability.
Avoid taking on too many plans at once
It’s easy to get carried away with multiple buy now, pay later plans, which can lead to financial strain. Keep track of the terms and due dates of each plan to avoid missing payments. Using budgeting tools or apps can help you stay organized and manage your loans effectively.
Pay on time
Timely payments are crucial when it comes to buy now, pay later plans. While these plans may not directly impact your credit score, missing payments can result in fees, account freezes, or even debt collection actions. It’s essential to pay on time to avoid negative consequences and maintain financial stability.
Organizing your payment schedules and staying on top of your financial obligations can help you avoid delinquency and maintain a healthy credit profile.
Select your payment method thoughtfully
When choosing a payment method for buy now, pay later plans, consider the implications carefully. Opting for automatic payments with a debit card may lead to overdraft fees, while using a credit card could result in interest charges if not paid off promptly. It’s essential to weigh the pros and cons of each payment method based on your financial goals and circumstances.
Understand the terms
Before committing to a buy now, pay later plan, take the time to read and understand the terms of the loan. Each lender may have different terms and conditions, so it’s crucial to be aware of any potential fees or charges associated with the plan. Familiarize yourself with the details to avoid any surprises down the line.