These plans can be handy, but proceed with caution.
- Some shoppers plan to pay off their vacation purchases over time.
- You have options for doing this aside from a credit card, but it’s important to know what you’re signing up for.
- BNPL plans can make sense if you know you can handle the payments, and also if you know you’ll have money soon.
At this point, you may already be planning to start your holiday shopping, if you haven’t already. Many retailers release deals early this year, so it pays to start looking around and see what discounts are available.
You might be tempted to buy items that you can’t afford right away. In this scenario, you have a choice. You can charge your purchases to a credit card and pay off your balance over time. Or, you can use a “Buy now, pay later” planor BNPL plan, which allows you to pay for your purchases in installments over a period of usually three months or less.
In a recent Bluedot poll, a good 40% of respondents said they plan to use a BNPL plan to cover vacation purchases. But is it a smart idea?
The Good Side of BNPL Plans
When you charge expenses to a credit card, you automatically sign up to pay interest on the carried forward balance. BNPL plans don’t work that way. If you stick to your plan’s payment schedule, you won’t have to pay interest. And that could mean a lot of savings.
BNPL plans are also quite transparent. Typically, you apply on the spot and, if your application is approved, make an upfront payment and get the option to repay most of your purchase in installments.
The downside of BNPL diets
BNPL plans are a reasonable alternative to credit cards. But they also have their drawbacks.
For one, you only have a limited window of time to refund your purchases.
With a credit card, you can carry a balance for eight months, 10 months, a year or more. With an BNPL plan, you usually have to repay your purchase within three months. And while it’s easy to argue that being able to carry over a credit card balance indefinitely isn’t, in fact, a good thing, the reality is that credit cards can be more flexible.
Additionally, while you won’t incur interest charges on a BNPL plan if you stick with it, once you deviate from your plan’s payment schedule, major consequences can occur. Not only could you incur costly interest charges and late payment fees, but this activity could also be reported to major credit bureaus, in the same way that you are generally notified in the event of a late payment by credit card. The result? Major damage to credit score which could make it difficult to borrow affordably in the future.
What’s the right call?
Paying for your holiday shopping with an BNPL plan makes sense if you know you can afford the payments involved, and also, if you’re sure you’ll have a stack of cash coming in the short term. Let’s say you’ve already been told to expect a $1,000 year-end bonus on December 1st. If you’re trying to get your holiday shopping off to a quick start, it might make sense to sign up for a BNPL plan in November and use your bonus to cover your payments.
On the other hand, if you’re not sure you understand the terms of the BNPL plan you’re considering, don’t sign up. And absolutely don’t sign up if money is tight and you’re barely able to cover your basic bills.
A BNPL plan is not a free pass to walk away with the items you want without having to worry about paying for them. And it is important that you know this before considering one.
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