Buy now, pay later (BNPL) services aren’t new, but they have certainly adapted to the times. In the past, layaway was the popular option. Shoppers would make a down payment to secure a purchase, complete payments over time – often months, then come pick up the item once they paid it off. Today’s BNPL services allow for more immediate gratification.
Apps like Klarna and Afterpay often break up purchases into four equal installments, the first of which is due at checkout. There’s often no credit check and no interest payments, making it accessible and attractive to many consumers. Plus, there’s no hold period on the item.
With the pandemic-fueled online shopping surge and inflation rates continuing to rise, many Americans turned to buy now, pay later options to keep the things they needed or wanted in reach. In fact, BNPL payments are projected to grow by over 60% in 2022.1 If interest-free payments sound too good to be true, they can be if you don’t manage them responsibly. Avoid any financial pitfalls by enlisting the following best practices.
Many major retailers now partner with a buy now, pay later service. If you opt to use a service on an Amazon purchase, it will allow you to make more even if you haven’t paid off the first purchase yet. As a result, you could rack up a handful of installment payments. If not tracking them, they could hit your account when you’re least expecting them to. Depending on the type of card you have linked to your BNPL account, this may result in an overdraft charge or a high balance on a credit card.
- Did you know? General Electric Credit Union (GECU) offers three overdraft solutions to keep your account out of the red. Get to know each one to find your best match.
Confirm you have the funds
As with all borrowed funds, it’s important to review your budget and confirm you can reasonably afford a purchase – even if the price will be broken up into installment payments. That’s because while most BNPL services don’t charge interest, they can send your account into default over a missed payment. This opens the door to account pauses, late fees, and possibly even a call from a collection agency.
Layer the benefits
BNPL services often don’t report data to the three main credit bureaus. As a result, the purchases you make with them won’t affect your credit score – unless a missed payment gets sent to collections. But if you responsibly manage your BNPL payments, you want to benefit from that, right? One workaround is to link your credit card to your profile. This way, you can continue building positive credit history while shopping.
GECU’s credit cards also open the door to reward points and cash back. By using your card, you can earn off your purchases! Cash back credit cards automatically apply the cash back rebate to your statement, whereas points-based credit cards rack up a balance that can be redeemed for gift cards, cash back, and more.
- Enjoy a better cash back option when you start earning unlimited cash back with a GECU Gold Card.2
Don’t count debit cards out of the competition! There are many reasons to link one to your preferred buy now, pay later service – the first being expanded security options thanks to Debit Card Controls. The customization options, like the ability to set spend limits and turn a card On/Off, keep you at the wheel of your hard-earned money. Plus, you can opt into alerts to get real-time notifications via text, email, or push notification.
How you budget is also a factor to consider. If your past spending habits make credit card use difficult to manage, paying with a debit card ensures you’re only spending money you have. Just be sure to take into account the installment payments as part of your overall strategy!
When using a BNPL service, reach for your GECU debit or credit card to keep the purchase secure, rewarding, and convenient. Plus, learn more about the pros and cons of installment payments from Neil Peterson, GECU’s Chief Credit Officer, in an interview with John Matarese.