KEY POINTS
- Using buy now, pay later services may lead to overspending beyond your financial means.
- It is advisable to use a rewards credit card for payments and only buy things when you are able to pay the full amount.
- If you have large expenses that cannot be delayed, think about applying for a credit card that offers a 0% introductory APR.
The option of purchasing items now and paying for them later, known as Buy Now, Pay Later (BNPL), has become widely available both in physical stores and on the internet. Retailers offer customers the choice to split up the cost of costly items into more manageable payments.
It is also gaining popularity among consumers, with more than half of BNPL users favoring it. credit cards As per a recent research conducted by The Motley Fool Ascent, Buy Now Pay Later (BNPL) may appear to be convenient, but it is often not the most optimal method of payment for buying items. There is an alternative worth exploring.
The optimal choice is to utilize a rewards card and settle the full payment.
An effective method of making purchases is to utilize a rewards credit card and ensure that you clear the card balance completely by the payment deadline. If you are unable to cover the cost of a purchase, it is advisable to save money for it in your savings account. Make the purchase only when you have saved enough to pay for it in full. By settling your credit card bill entirely, you avoid paying any interest charges.
There are several key benefits to opting for this approach instead of BNPL. By using a rewards card, you can accumulate cash back or travel rewards points with each purchase. For instance, certain rewards cards offer Best credit cards for earning cash back Receive a 2% cashback on all purchases or potentially earn up to 6% in bonus categories. If you spend $500 and receive a 3% cash back, you will get $15 back. You usually do not receive any benefits when you make a payment using BNPL.
Many rewards cards offer sign-up incentives for new users, like a $200 bonus for spending $1,000 within the initial three months. Rather than using a Buy Now, Pay Later (BNPL) scheme for a significant purchase, you could charge it to a new rewards card and leverage the expenditure to receive a bonus.
The “buy now, pay later” option promotes buying items even if you do not currently have the funds to pay for them.
One of the main issues with BNPL is that it promotes irresponsible financial behaviors. If you can’t pay for that couch upfront, no worries – you can spread the cost over four installments. This option is also available for items like clothing, gadgets, and even your food shopping.
It’s usually advisable to steer clear of taking on debt for such purchases, although there are some special cases. For instance, if you require a computer for your job and you are unable to make the full payment upfront, then spreading out the payments might be the only solution. However, if you simply desire a new phone, coffee maker, or furniture, you can set aside money gradually and make the purchase once you have saved enough.
Using BNPL for unnecessary purchases can lead to developing a habit. Some BNPL users engage in “loan stacking,” where they take out several loans in a brief period. Moreover, while repaying BNPL plans, you may have limited funds to cover bills, save money, or invest for the long term.
If you are unable to make full payment, consider applying for a credit card with a 0% Annual Percentage Rate.
If you are facing a scenario where you have to make a costly purchase that you cannot afford to pay off immediately, Buy Now Pay Later (BNPL) may seem like a viable solution. However, there is likely a more advantageous alternative available.
Instead of using Buy Now Pay Later services, consider applying for a credit card that offers a 0% introductory APR on purchases. top cards with 0% interest rate They provide introductory periods with 0% interest for 15 months or more, allowing you to clear your balance without accruing any interest charges during this period. In contrast, Buy Now Pay Later (BNPL) services typically offer payment plans spanning six weeks.
With a 0% intro APR card, you have the opportunity to have a longer timeframe to repay your purchases. Additionally, some 0% intro APR cards offer cash back rewards, allowing you to enjoy the benefits of both features.
When you’re uncertain about making a purchase, it might be alluring to opt for Buy Now, Pay Later (BNPL) services. This is why numerous retailers have collaborated with these services and started providing installment options – they aim to encourage you to make larger purchases. Although it may seem exciting to instantly acquire what you desire, it is more prudent to steer clear of accumulating such avoidable debts for better financial management in the long run.
