Buy Now Pay Later

Would you rather pay $100 upfront or owe a payment of $20 for 5 months?

This article will explain to you what many do not understand: Choosing a certain one of these options can lead you into more trouble than you could even imagine.

You probably have seen the option to use a buy now, pay later service like Afterpay or Klarna while checking out on your favorite websites. These services claim to “Manage your budget.” But, it is important to understand that if misused, buy now and pay later services have the potential to make you pay more than just what’s in your cart.

For those who have never heard of or used a service like this I will break it down simply for you. While checking out a cart full of items online, an option appears to pay the total either in full, or in smaller amounts over the course of several months. At glance, what was just a $100 cart, has now turned into $20 payments over the course of 5 months, with no interest owed. Seems like a good deal right? 

Wrong.

Late fees. Missed payment fees. Hidden fees. Debt.

Those are just some of the dangers that you may face, once you begin using these payment plans.

These services make it easy for a buyer to start payment plans, without taking into consideration if the buyer can really afford it. They don’t look at important financial indicators like outstanding debt, car payments or even a bank account balance. This makes it easy for users to fall behind on payments, as they are stuck with items that they could never truly afford. Right on cue, an avalanche of fees begins to fall into the lap of the user.

Don’t believe me?

Meet Jackie: a woman who has had to face that avalanche head on. Jackie needed essential dental surgery in order to save her teeth. She was told it would cost $4,200 but that it could be paid off in small amounts using a buy now pay later service, after she disclosed she wouldn’t be able to pay it all at once.

Just 6 months later, Jackie owed $2,500 in late fees, on top of her original payment of $4,200. The situation got to a point of such distress that she said, “At one stage, they [the BNPL plan] took the money out and I didn't have money for food.”

The Problem:

Gen Z and Millenials have adopted this method of payment the fastest and almost half of the generation is expected to use one of these services in the next two years. At the same time, data has shown that the majority of purchases through these services are on non-essential items such as new clothes or electronics. In other words, expensive items that people don’t truly need. 

So, is it a coincidence that those generations are also accumulating debt faster than any other generation?

Take a moment now and open the app TikTok, if you use it. Simply look up the word “Afterpay” and scroll through a couple videos.

For those who don’t use the app, the one word being searched triggers a slew of young people, sharing their horror stories about falling into the trap of buying now, pay later services. 

The viral videos are simple: young adults showing the thousands in debt they have accumulated, with countless comments of people complaining about their growing debts as well.

This should not be the norm.

After reading this short newsletter, my goal was for you to simply think twice the next time you decide to buy something that you don’t absolutely need, using one of these services. Now, whatever you may decide, you understand what can happen if these services are misused.  

Be smart.

By: Ben Smith

Disclaimer: Buy now and pay later services can be an effective way of buying necessities, if used in a responsible manner and having an understanding of the risks associated with them. The purpose of this article is not to convince you into never using a payment plan. It is simply to ensure that the younger users in this country understand what they are getting themselves into when they do.