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This is the third Christmas that Nicole Darr of Irving, Texas has used buy now, pay later (BNPL) to buy Christmas gifts for her nieces. She tried most installment loan platforms: Afterpay, Affirm, Klarna and Sezzle among them.
“I like to be done early,” Darr says. “I’m 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 strict budget, so sometimes the money she has allocated for gifts becomes available after her self-imposed deadline.
The Buy Now, Pay Later platforms helped her fill her budget gaps. And with supply chain issues creating problems for shoppers in nearly every category this year, it’s helping her get even further ahead of her Christmas shopping – she started in October.
These payment platforms, which have become much more common in recent years, offer shoppers 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 lower credit scores. And missed payments may be more common than you think: In a November survey of 2,000 adults per YouGov for Forbes Advisor, 11% of people who had used a BNPL service had missed a payment more than once.
If you’re using buy it now, pay later services, here’s how you can avoid making the same mistakes.
Why you see Buy Now Pay Later Anywhere Now
The YouGov survey found that among respondents who have used a BNPL platform, 51% chose it because they like to spread out payments to help them budget effectively. Thirty-eight percent said they were attracted to the fact that payments are interest-free.
This perceived convenience has helped BNPL really take off since the pandemic began. As we moved from a mix of in-person and online shopping to primarily online, the BNPL platforms were there to provide a modicum of ease for shoppers who may have been feeling stressed about money.
Buy now, 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 a revolving balance.
While each service is different, they usually offer a similar configuration:
- You open a payment plan at checkout
- You can divide your purchase cost into equal parts
- Repayment takes place at set intervals (usually every two weeks) and you can set up automatic payment
- You won’t 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 daunting than racking up a credit card bill with the ability to have a balance that rolls over each month.
A Adobe Analytics report found that online revenues from BNPL purchases were 10% higher in 2021 than in 2020 and 45% higher than in 2019.
“We’ve seen a lot of new technologies — or just consumer familiarity with them — really blossom 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, counting 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 that game anymore,” she says. “So that totally gave me the pointless stuff.”
She mainly used BNPL to spread payments for clothes. “Because of the pandemic, I wasn’t going to stores to try things on,” she explains. She didn’t want to make those big purchases with a credit card and risk interest accumulating on a credit card bill while she waited for some returns to be processed.
BNPL is also offering some shoppers a way to purchase gifts 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 Buy Now Pay Later Accounts
If you use BNPL to make purchases regularly, or tend to have multiple payment plans running at once, 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 set it and forget it
Thomas cautions against assuming that all BNPL operators operate the same way. Although most offer the option of splitting your purchase into four equal interest-free installments, this is not the case at all levels. (For example, loans from Affirm can last a year or more instead of the usual six weeks.)
Use the automated reminders offered by each platform to keep an eye on your accounts. If you set up automatic payments, make sure you have enough money in your account on the date of each payment.
Our survey by YouGov revealed that while 70% of people who have used BNPL have never missed a payment, 27% have missed at least one payment.
Lamm relied on text and email reminders from Affirm 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 writes down my budget every month and on what date [payments] Will pass. At first, she says she noted her BNPL amounts in what she calls her “regular” budget along with current expenses. But it got confusing once she got multiple repayments at the same time. She now records her BNPL purchases in a separate spreadsheet so she can track each one individually.
2. Stay on top of returns
Returning an item when you paid with an BNPL platform adds an extra layer to the process. Although you will usually follow the returns process with the retailer, the retailer will also need to communicate the changes to the BNPL department so that they can adjust your amount due.
The two usually communicate seamlessly, but it may take an extra day or two to see updates in your BNPL account.
If you are sending your return for an online order, check if you can notify your BNPL supplier that you are making a return. They may be able to delay your payments so you don’t continue to make payments while you wait for your return to be processed.
3. Check retailer policies before buying in-store
BNPL is no longer just for online orders. By adding a temporary card to your mobile wallet, you can pay at checkout at a wide variety of stores.
Just be sure to check the store’s policies before making a purchase that you’re not sure about keeping. Otherwise, you could end up with a headache coming back.
Lamm recommended his girlfriend, Caitlin, to use Affirm to pay for shelves at Ikea. But the temporary Affirm virtual card she used to pay for the transaction expired after 24 hours and Ikea was only issuing refunds to the “original” payment method. After many back and forths with Ikea and Affirm, Caitlin ended up with store credit instead of a refund.
“It was a big trap and it really put her off using it where she doesn’t really use it at all anymore,” she says.
Ikea and Affirm did not respond to Forbes Advisor’s request to clarify the return process for purchases made through expired virtual cards.
4. Don’t overdo it
Before you incorporate BNPL into your shopping routine and start accumulating purchases, “you want to make sure you’re financially savvy enough to handle this,” says Thomas. “It’s different having all these mini installment loans as opposed to one credit card bill,” she adds.
Above all, the key is not to use these platforms to buy things you can’t really afford. “That’s always the challenge with any line of credit,” adds Thomas. Although BNPL platforms boast that they do not charge interest or late fee, this may change if you continue to miss payments. While these services typically only perform a soft credit check that does not affect your scores, unpaid accounts can be reported to credit bureaus, which can cause your credit scores to drop and potentially hurt your ability to obtain credit approval in the future. .
Lamm recommends trying purchases one at a time while you get used to using BNPL. “These repeat payments take time to get used to factoring into your budget and you can get away with it very easily.”
Lamm used BNPL so much initially that she says she’s taking a break from using it. “I need a few months where it’s not a complication in my budget, where I don’t have to keep track of it,” she says. “Because there were times when I…would find myself with five different payments due in a few days.”
She says she will consider BNPL, but only for large purchases needed. “I’m going to moderate spending in general,” she says. “It’s so easy to lose track.”