Why Buy Now, Pay Later Methods Aren't Easy

Inflation rates have caused many Americans to resort to easy access loans and installment plans. Food, electronic items, household items, rent, mortgage, bills and / or other necessities are being affected across the board. What does this mean? Many individuals are experiencing the burden of rising costs and are looking for an alternative route to pay for things quicker. However, there are major consequences resulting from what is called a buy now,
pay later method.  

According to a Newsweek article “Americans Using Buy Now Pay Later for Basics May face a Snowball of Debt”, companies such as PayPal and After Pay have seen dramatic market growth and capitalization with up to “an expected account of 12 percent of e-commerce sales by 2025 - up from 3 percent in 2021.” These companies are exploiting young Americans with fresh credit and those who don't necessarily know how to manage their credit correctly. It is too easy to take out multiple loans and stack them to the point of no return. Individuals who are financially literate enough to understand how payment plans work will survive the momentum of building up loans. When creating a payment plan, make sure your payments are realistic and manageable, focus on one debt at a time, build up your savings, and make payments on time (even if you have to set a few reminders). 

Most people who take out loans fall behind and miss payments that will hurt them long term. Buy now, pay later methods only work if you understand the risk and the type of loan you're dealing with. Usually companies like to introduce hidden fees or hidden interest rates after you miss certain payments throughout the payment cycle. Researching your loans can help you find and avoid these fees that come with missing a payment, and help prevent additional debt. According to a 2021 Credit Karma Survey, “roughly one-third (34 percent) of buy now pay later consumers had fallen behind on at least one of those installment payment plans. Nearly 72 percent of respondents said their credit scores declined as a result.” 

More than likely in this day and age, people will only use buy now, pay later payment plans because of inflation. According to CNBC, “younger generations, millennials and Gen-Zs are turning to the various BNPL platforms.” The reason being the convenience the buy now, play later systems provide. When it comes to food and clothes specifically, this where heavy spending comes into play that translates to more and more loans overtime. Bill Dendy, who is a notable Financial Planner told Newsweek, “if you are turning to credit for everyday expenses that are repetitive and come back every single week or month, you are then allowed to create this giant snowball of debt.” Buy now, pay later methods are not for everyday expenses. They should only be used as a last resort or after extensive research, with an understanding of the risks that come with them. 

Here to help,

Your Financially Fit Team