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This is the third Christmas that Nicole Darr of Irving, TX is using Buy Now, Pay Later (BNPL) to purchase Christmas gifts for her nieces. She has tried most of the installment loan platforms: Afterpay, Affirm, Klarna and Sezzle among them.
“I like being done early,” Darr says. “I am not a last minute person.” She tries to finish her Christmas shopping at least two weeks before Christmas Day, three weeks if all goes well. But she also buys gifts on a tight budget, so sometimes the money she has allocated for gifts becomes available after the deadline she has set for herself.
The Buy Now, Pay Later platforms have helped her fill her budget gaps. And with supply chain issues creating problems for shoppers in almost every category this year, it is helping her get a head start on her Christmas shopping even earlier – she started in October.
These payment platforms, which have become much more common in recent years, have offered buyers a convenient alternative to credit cards or long-term loans.
But managing your accounts, especially if you use different platforms, can get tricky. If you miss payments, you could end up with fees or even a decrease in credit scores. And missing payments may be more common than you think: in a November survey of 2,000 adults by YouGov for Forbes Advisor, 11% of people who used a BNPL service missed a payment more than once.
If you use the Buy Now Pay Later services, here’s how you can avoid making the same mistakes.
Why You See Buy Now Pay Later Everywhere Now
The YouGov survey found that among those surveyed who used a BNPL platform, 51% chose it because they liked to spread out payments to help them budget effectively. Thirty-eight percent said they were drawn to the interest-free payments.
This perceived convenience has helped BNPL really take off since the start of the pandemic. As we moved from a mix of in-person and online shopping to primarily online, BNPL platforms were there to provide a minimum of ease for shoppers who might be feeling stressed out about money.
The Buy Now and Pay Later platforms are similar to using a credit card, but there are a few key differences. A BNPL platform allows you to start a separate payment plan for each individual purchase you make, unlike a credit card which allows you to add to a revolving balance.
While each service is different, they generally offer a similar setup:
- You open a payment plan at checkout
- You can divide your purchase cost into equal parts
- The refund takes place at set intervals (usually every two weeks) and you can set up automatic payment
- You will not pay any interest as long as your payments are up to date
- There is no impact on your credit as long as you pay on time. For most loans, BNPL services only perform a soft credit check.
For many consumers, using BNPL is less scary than accumulating a credit card bill with the potential of having a revolving balance each month.
A Adobe Analytics report found that BNPL’s online shopping revenue was 10% higher in 2021 than in 2020, and 45% higher than in 2019.
“We’ve seen a lot of new technology – or just consumer familiarity with it – really flourish during the pandemic,” says Katie Thomas, head of the Kearney Consumer Institute at consulting firm Kearney.
Houston’s Stephanie Lamm started using BNPL during the pandemic, when she wanted to buy a new mattress but couldn’t pay for the entire purchase up front. She has since become a regular user, making 16 purchases through Affirm between December 2020 and August 2021.
Lamm had recently paid off his credit card debt using a personal loan to consolidate his balances. “I didn’t want to get into this game anymore,” she says. “So that totally got me with the uninspiring thing.”
She mainly used BNPL to spread payments for clothing. “Because of the pandemic, I didn’t go to the stores to try things on,” she explains. She didn’t want to make those big purchases with a credit card and would risk seeing interest accruing on a credit card bill while she waited for some returns to be processed.
BNPL also offers some shoppers a way to purchase freebies as they see them rather than waiting for their next paycheck. But spending money before you have it can be a gamble.
How to Manage Multiple Accounts Buy Now Pay Later
If you use BNPL to make purchases on a regular basis, or tend to have multiple payment plans at the same time, it can be difficult to manage them. Here are some tips for managing your purchases to keep your accounts in good standing.
1. Don’t define it and forget it
Thomas cautions against the assumption that all BNPL operators work the same. While most offer the option of splitting your purchase into four equal interest-free payments, this is not the case across the board. (For example, Affirm loans can last a year or more instead of the usual six weeks.)
Use the automated reminders offered by each platform to closely monitor your accounts. If you set up automatic payments, make sure you have enough money in your account on the date of each payment.
Our YouGov survey found that while 70% of people who used BNPL never missed a payment, 27% missed at least one payment.
Lamm relied on Affirm’s SMS and email reminders to remember when payments were about to be processed and from which bank account. But she also tracks this same information in her monthly budget.
“I am one of those people who write down my budget each month and on what date [payments] Will pass. At first, she says she wrote down her BNPL amounts in what she calls her “normal” budget along with current expenses. But it got confusing once she had multiple repayments at the same time. She now records her BNPL purchases in a separate spreadsheet so that she can track them individually.
2. Stay on top of returns
Returning an item when you have paid with a BNPL platform adds an extra layer to the process. While you usually go through the returns process with the retailer, the retailer will also need to communicate the changes to BNPL so they can adjust your amount due.
The two usually communicate transparently, but it may take a day or two longer to see updates in your BNPL account.
If you are sending your return for an online order, check if you can notify your BNPL provider that you are making a return. This can delay your payments so that you don’t continue to make payments while you wait for your return to be processed.
3. Check the retailer’s policies before buying in store
BNPL is no longer limited to online orders. By adding a temporary card to your mobile wallet, you can pay at checkout in a variety of stores.
Just be sure to check the store’s policies before making a purchase that you’re unsure about keeping. Otherwise, you could end up with a headache back.
Lamm recommended his girlfriend, Caitlin, to use Affirm to pay for shelves at Ikea. But Affirm’s temporary virtual card she was using to pay for the transaction expired after 24 hours, and Ikea would only give a refund to the “original” payment method. After many back and forth trips with Ikea and Affirm, Caitlin ended up with store credit instead of a refund.
“It was a big pitfall and it really deterred her from using it where she doesn’t use it at all,” she says.
Ikea and Affirm did not respond to a request from Advisor Forbes to clarify the return process for purchases made through expired virtual cards.
4. Don’t overdo it
Before you make BNPL an integral part of your buying routine and start stacking up your purchases, “you want to make sure that you are financially savvy enough to handle this,” says Thomas. “It’s different having all those little installment loans compared to just one credit card bill,” she adds.
First and foremost, the key is not to use these platforms to buy things that you can’t really afford. “That’s always the challenge with any line of credit,” adds Thomas. Although BNPL platforms claim that they don’t charge interest or late fees, that can change if you continue to miss payments. While these services typically only perform a smooth credit check which does not impact your scores, unpaid accounts can be reported to the credit bureaus which can impact your credit scores. and potentially interfere with your ability to obtain credit approval in the future. .
Read more: How to react when your debt is sent for collection
Lamm recommends trying the purchases one by one as you get used to using BNPL. “These repeated payments take time to get used to considering your budget and you can get by without them. “
Lamm used BNPL so much in the beginning that she takes a break from using it. “I need a few months where it’s not a complication in my budget, where I won’t have to keep track of it,” she says. “Because there are times when I … would end up with five different payments due in a matter of days.” “
She says she will consider BNPL, but only for necessary large purchases. “I’m going to cut spending in general,” she said. “It’s so easy to lose track. “