Looking to save a few dollars over the holiday shopping season? You’re not alone. Black Friday is the time many Americans choose to get a jump on that Christmas list. But increasingly, shoppers are turning to the internet to save. Cyber Monday helps you avoid holiday lines and enjoy the same great deals. But perhaps you’ve noticed those “Buy Now Pay Later” (BNPL) prompts before you check out. As one of the newest forms of short-term financing to help shoppers handle the bulk of holiday spending, we’re exploring how it stacks up against traditional credit card financing.
How Does Buy Now Pay Later Work?
With BNPL, the buyer agrees to pay roughly 20 percent of the cost of the item and make the rest of the payments in a series of interest-free installments. The buyer gets the item with the first payment and is expected to make the other payments on time to avoid paying interest. The convenience of not having to worry about a credit check is one reason many people choose BNPL services. However, failure to make payments or falling behind may incur unexpected charges or fees.
Now That I Know How Buy Now Pay Later Works, What’s the Catch?
Services like Klarna, AfterPay, and PayPal offer benefits, including fast approvals and no-interest payments. However, these services lack some regulatory oversight that debit and credit card and lending services abide by. There is also evidence of BNPL services not disclosing rates and fees or promoting overspending behaviors.
Buy Now Pay Later Plans May Lack Regulatory Oversight
BNPL services are a relatively new offering, meaning there are fewer rules in place to protect consumers. In addition, because BNPL services are not recognized as lenders, they do not have to abide by the same rules as banks or credit unions.
While credit cards and debit cards use standard practices like disclosing interest rates and borrowing terms upfront, many BNPL services advertise no-interest payments while failing to disclose late payment penalties to the consumer. And if the customer returns the item, in some cases it’s reported that they must make remaining payments to the BNPL service regardless.
Buy Now Pay Later May Encourage Higher Spending In Comparison to Other Payment Types
A survey of 1,500 U.S. consumers in early 2021 found that over half (55%) of consumers self-reported spending more using Buy Now, Pay Later services than they otherwise would using other payment methods. This change in spending behavior
may make it more difficult for someone trying to get out of debt. Payments can also be hard to track through these services, meaning that if you have a habit of falling behind on payments, fees can stack up quickly for late or missed payments.
What Do Credit Cards or Debit Cards Offer That BNPL Services Don’t?
Using credit cards is a good practice for building credit history. Payments reported to credit bureaus help to determine a borrower’s future creditworthiness. Also, many credit card companies offer membership benefits on spending, like cash-back programs or airline miles. Buy Now Pay Later services do not offer these same benefits. In addition, credit and debit card services offer value-added benefits like purchase security and the ability to dispute payment amounts.
So while Buy Now Pay Later services may offer a convenient short-term way to pay back a debt, it is not meant to handle consumer debt in the long term (which most Americans have). Something like a personal loan or credit card may offer clearer repayment terms and fairer interest rates for this kind of debt.
Get Clear Repayment Terms and a Card That Pays You To Spend This Holiday Season with DEXSTA Visa Platinum
It might seem counterintuitive: a card that rewards spending, but that’s what our DEXSTA Visa Platinum card offers. Make this holiday season’s spending work in your favor with merchandise, travel, and points to cash rewards. The 2.99% introductory rate on all purchases for 12 months ensures you’ll get clear repayment terms and rates that work for you. And the best part is, there are no frivolous fees, including balance transfer fees, over-the-limit fees, annual fees, or cash advance fees. So embrace more financial freedom this holiday season with DEXSTA. Open a card with us and know exactly what repayment terms to expect!