What to Know Before Using Buy Now, Pay Later for Holiday Shopping

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  • 45% of consumers will use Buy Now, Pay Later for holiday gifts, and the average consumer will pay $663 with a credit card.
  • Financial advisor Humphrey Yang says there are four things you should know before taking on donation debt.
  • Before using BNPL, know what are the late fees and interest.

According to a recent survey by Cardify, 45% of consumers will use Buy Now, Pay Later (BNPL) to pay for their holiday shopping this year. BNPL is an online shopping feature that allows you to pay in smaller amounts over time.

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Companies like Affirm, Afterpay, and Klarna are partnering with businesses to allow customers to buy the item now, and pay for it in installments later. Generally, you have to pay about 25% of the purchase price up front, then make additional interest-free payments on the item later. Finding out if you’re approved for a loan takes seconds, and you don’t need a high credit score to be approved.

“Buy Now, Pay Later can be a great option if you really have a valuable gift that you know you can pay off over time,” says Humphrey Yang, a personal financial planner who works with Amex Rewards Checking. “But if I didn’t have that money, I might try to find another donation instead of using BNPL.”

Here are three things you should know before buying expensive Christmas gifts using BNPL.

1. Know the interest rate

Yang said the key to using BNPL is understanding the terms of the deal, starting with the interest rate.

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If you make your payments on time, you will not usually be charged interest using BNPL. But if you delay the payment beyond the original agreement, you can be charged interest of up to 30% per year. In contrast, the interest rate on credit cards is only 18.43%.

Yang said, “It makes people feel bad because the terms may be good at first, but if you wait a long time to pay it off, you won’t get the best interest rate.”

2. Check the late fees

Here are the late charges for some of the popular BNPL services:

Although BNPL offers no late fees, late payments can affect your credit score.

Yang said, “All BNPL programs have different types of requirements. People want things now, and it’s not good for their money later. These services exist because they are profitable.” The best way to protect yourself, Yang says, is to carefully review the terms of the contract before signing up.

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3. Find out if you can make payments correctly or not

The main thing you need to know about BNPL before adding this luxury offer to your cart is whether the upcoming payments will fit your budget. For example, if you’re making a $2,000 purchase that will be split into four $500 payments, check your budget to see if you can pay an extra $500 each month.

Yang said, “I always tell my friends, ‘If you can’t afford it, don’t buy it.’ But it’s really hard to tell a single mom or a single dad who’s trying to buy something special for their son or daughter, so I get the edge as well. It’s hard because those parents are want to buy gifts for their children and sometimes BNPL conditions are not good, especially if you don’t have time or don’t speak the language.”


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