How to Use Buy Now Pay Later for Holiday Shopping


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You probably want to get a head start on holiday shopping this year, but you might not know how you’re going to fund those purchases months in advance. Increasingly, buyers are turning to ‘buy now, pay later’ loans to pay for everything from exercise bikes to bedding, as the financial product allows customers to divide the cost of their purchases into installments. usually due every two weeks.

In fact, an Affirm poll found that 56% of people were interested in using BNPL to fund their holiday shopping. Retailers including Amazon, Walmart and Target have followed the trend and in recent months have announced partnerships with BNPL vendors including Affirm, Sezzle and Zip.

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While BNPL, also known as point-of-sale loan, might seem like a good choice for vacation spending because it allows you to split the cost of your purchases over time, you should use them with caution. Below, Select describes four things to keep in mind before you start using BNPL to fund your holiday shopping.

1. You might be inclined to spend too much money with BNPL

Savvy consumers can be smart about their use of BNPL and only sign up when they know they have enough money to pay the balance. However, it’s easy for consumers to overspend when using a POS loan: A LendingTree study found that two-thirds of consumers using a BNPL loan said they spent more than they would if they had to pay for their purchase in advance.

Merchants love BNPL because it prompts consumers to spend more. Afterpay boasts that order values ​​are 20-30% higher when consumers use its service compared to other payment methods like debit, credit, or cash.

While there is no published research yet on the psychological impact BNPL can have on spending, Sachin Banker, an assistant professor of marketing at the University of Utah, says consumers might be inclined to make the same mistakes with BNPL loans that they are with them. credit card.

“Psychologically, people spend too much on credit cards in part because credit cards allow people to separate consumption from payment,” he says. “In other words, you can get the item right away, but you don’t really have to think seriously about the costs until you [get] a complicated bill later, which brings it all together. “

Baker believes payment methods, like credit cards and BNPL loans, encourage overspending by lowering costs for consumers. In other words, when consumers receive an invoice long after making a purchase or when those invoices are difficult to interpret, they may end up spending more at checkout because they only understand the true cost of their purchases more. late.

Since BNPL loans typically don’t require people to put down a down payment for their purchase up front, it can be easy to overlook other installments or be tempted to spend money on products they you can’t actually afford it.

If you really need a BNPL loan to fund the FitBit you buy your Santa for Christmas, you should have a clear idea of ​​how much each payment is, when each payment is due, the interest rate on the loan and whether you can afford the full value of the property.

2. It could have a negative impact on your credit score

BNPL loans appeal to consumers with lower credit scores because they offer the same benefits as a credit card without requiring a good credit score. Some BNPL providers, like Afterpay, don’t perform any credit checks, and others, like Affirm, only perform indirect credit checks.

Nonetheless, you should be careful about the effect these loans might have on your credit report, as some BNPL loans can lower your score, whether you pay them back on time and in full.

Here’s why: Each BNPL loan you take out is considered a separate account on your credit report. When you take out a short-term loan and pay it off, you close an account and thereby lower the average age of your credit history. Since the length of your credit history (which is made up of the average age of your accounts, the age of your oldest account, and how long you’ve opened an account) represents 15% of your FICO score, using multiple BNPL loans and closing them could have a huge negative impact on your credit score.

In order to avoid this, you will want to go for a BNPL loan that does not report to the credit bureaus. For example, Afterpay only offers one product: a six week BNPL option with 0% interest, and it does not report to the credit bureaus.

Before taking out a BNPL loan, do your research and see if the company will do a credit check and report back to the bureaus, especially if you take a longer term loan that bears interest.

3. It might be more difficult to make returns with a BNPL loan

Since BNPL loans are a relatively new method of financing, there are less government regulations and consumer protections in place than with credit or debit cards. Most major BNPL providers like Klarna, Affirm, and Afterpay have their own dispute protection and return policies, but it can be confusing for consumers to understand which companies they need to contact in the process.

For returns or issues with a product purchased with a BNPL loan, consumers usually need to contact the merchant first. Often times, the merchant will resolve the issue and the BNPL provider will reimburse the consumer after the return has been processed by the merchant.

However, some BNPL providers require you to continue making payments on your purchase until the return has been processed. Klarna, Affirm, and Afterpay allow customers to delay payments in certain cases. Klarna will allow you to withhold payments if you report a problem with an order, and Afterpay will allow you to extend the original payment due date by two weeks until the return is processed.

If you have a problem with the quality of a good it can get more complicated, but usually you need to contact the retailer first, then the BNPL provider and the credit or debit card issuer that you used to finance your purchase if you can’t fix the problem.

If you are unsure of the reputation of a retailer you buy from, or think you might need to return something you bought, it may be wiser to pay for your purchase with a credit card. Cards like the Blue Cash Preferred® card from American Express offer return protection, so cardholders who have issues with a retailer who won’t accept their return can be reimbursed up to $ 300 per return. article and up to $ 1,000 per year per account.

4. You can spread your purchases for longer with a 0% APR card

For consumers who want a longer period of time to pay off their purchases, a 0% APR credit card might be a better choice than a BNPL loan. While most BNPL providers like Affirm, Klarna, Zip, Afterpay, and Sezdle offer 0% APR loans, they typically have a repayment term of just six weeks. (Note: Affirm has 0% long term loans with some retailers, but these require a thorough credit investigation to be approved.) With 0% APR credit cards, customers don’t have to pay interest if they change their balance. during the first six to 21 months of membership in the card.

Many 0% APR credit cards also offer customers the opportunity to earn rewards. So if you are spending big during the holiday season, you can earn some extra cash by hitting a spending limit and pocketing the welcome bonus or getting cash back on your purchases. Plus, credit cards can provide a better opportunity to build your credit score if you pay off your balance on time each month. (With a 0% APR card, you will still have to pay at least the minimum each month.)

The American Express Cash Magnet® card offers new cardholders a $ 200 statement credit after spending $ 2,000 on purchases in the first six months of card membership, and you can get a period of introduction of 15 months at 0% on new purchases, then from 13.99% to 23.99% variable APR (see prices and fees).

Another good option if you want cash back on all your purchases is the Chase Freedom Unlimited®, which has a 0% introductory period of 15 months, then an APR variable of 14.99% to 24.74% on new purchases. It also has a generous cash back program: new cardholders can get 5% cash back on their grocery store purchases (excluding Target® or Walmart® purchases) up to $ 12,000 spent in the first year, 5% cash back on Chase trips purchased through Chase Ultimate Rewards®, 3% on restaurant meals (including eligible takeout and delivery services) and drugstore purchases and 1.5% cash back on all eligible purchases.

If you choose to get a 0% APR card, be sure to keep track of the end of the 0% APR period because you don’t want to pay interest on your vacation purchases. Ideally, you use it as a BNPL loan, paying it off a bit each month.

And since credit cards can also trick consumers into overspending, make sure you have a clear idea of ​​what you’re buying and how much you’re spending so you’re not surprised when the bill arrives.

At the end of the line

When it comes to shopping for the holidays this year, it can be tempting to use a BNPL loan to fund any purchases you purchase up front. Although BNPL loans are convenient and easy to use, you should read the fine print before signing up.

Holiday shopping can be overspending for many people. Therefore, the first thing you need to know when using BNPL loans is whether you can afford the item you are purchasing. You should also pay close attention to a vendor’s return policy, whether it reports to the credit bureaus and its interest rates and late fees.

For pricing and fees for the American Express Blue Cash Preferred® card, click here

To find out the prices and fees of the Amex Cash Magnet card, click on here.

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.

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