Using “buy now, pay later” (BNPL) has become increasingly common in recent years as people look to split up and finance purchases they make.\u00a0<\/p>\n
According to Credit Sesame financial analyst Richard Barrington, some key steps people should take as they utilize BNPL include budgeting beforehand, reviewing the terms of the plan, determining what fees could be associated and being prepared for automatic payments.<\/p>\n
“If you need BNPL to be able to pay for something, you have to question how you\u2019re going to come up with the money<\/a> to make the BNPL payments when they come due,” he said, noting budgeting ahead of time can help someone figure out if they can foot the bill for what they\u2019re buying and any debt they could build up because of it.<\/p>\n BUY NOW, PAY LATER PITFALLS: MANY CONSUMERS AREN’T PAY LOANS<\/strong><\/a><\/p>\n He recommended reviewing what income will come in “over the term of the BNPL payments” and then subtracting “all the essential expenses you\u2019ll have during that time” to help “see if you\u2019ll have enough left over to cover BNPL payments.”<\/p>\n “If not, you risk missing one of those BNPL payments and incurring late fees,” he said.\u00a0<\/p>\n Budgeting beforehand can “also help you avoid not being able to afford one of those essential expenses because you committed too much money” to BNPL, according to Barrington.\u00a0<\/p>\n The Credit Sesame financial analyst urged people taking out BNPL loans to take a close look at the terms of the plan they\u2019re signing up for.\u00a0<\/p>\n “Know how much you have to pay and when,” Barrington said. “Also pay attention to what happens if you don\u2019t make a payment on time.”\u00a0<\/p>\n Knowing the timing and size of the BNPL payments can help avoid incurring a late fee, he said.<\/p>\n BNPL late fees averaged $7 for a loan<\/a> taken out on a $135 purchase, according to the Federal Reserve Bank of Richmond.\u00a0<\/p>\n Barrington advised “avoid signing a BNPL agreement you can\u2019t take home and read first.”<\/p>\n “Many BNPL arrangements are made at the point of sale, like in a store<\/a>. That means you\u2019re trying to understand the terms while you\u2019re in a hurry and with lots of distractions around,” he said. “Instead, take the agreement home with you to read, and then come back to the store to make the purchase. If it doesn\u2019t seem worth that effort, perhaps you don\u2019t really need to buy the item.”\u00a0<\/p>\n BNPL can have “strict payment terms” that can lead to late fees, so it\u2019s important to know what the costs associated with the plans could look like, according to Barrington.\u00a0<\/p>\n “These fees may look like they\u2019re fairly low dollar amounts, but since BNPL purchases are generally for relatively low-priced items, they can represent a large percentage of the purchase price,” he explained.<\/p>\n Some ways people can steer clear of late fees from BNPL include budgeting and knowing the terms of the installment plan they\u2019re using.<\/p>\n On top of that, he said, creating calendar reminders or using automatic payment options can be helpful.\u00a0<\/p>\n When it came to automatic BNPL payments, Barrington noted people should “pay close attention to the amount and schedule” because “otherwise you may find yourself hit with an overdraft fee if your bank account doesn\u2019t have sufficient funds to cover the payments.”\u00a0<\/p>\n COSTCO ROLLS OUT BUY NOW, PAY LATER FOR BIG ONLINE PURCHASES THROUGH AFFIRM<\/strong><\/a><\/p>\n