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Wanting to Use Buy Now Pay Later This Holiday Season? Ask These 6 Questions Before Saying Yes


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December 10, 2023

Buy Now, Pay Later programs have gained immense popularity for their accessibility and flexibility. They allow consumers to acquire items instantly and break down the cost into manageable payments. This can be particularly appealing during the holiday season due to the allure of delayed payments that can help settle financial stress.

As the holiday season approaches, many of us find ourselves eager to indulge in the joy of giving and receiving gifts. With the rise of convenient and enticing Buy Now, Pay Later (BNPL) programs, the temptation to make those holiday purchases may be stronger than ever. While these programs offer immediate access to desired items without the immediate financial burden, it is crucial to ask yourself these 6 questions to see if whether opting for BNPL is truly a wise decision before committing to a purchase.

1. Does This Plan Charge Interest?

Most shoppers will encounter zero-interest pay-in-four plans, which divide the cost of your purchase into four equal installments with the first due at checkout, and the remaining three due every two weeks. But longer, interest-charging payment plans are becoming more common. Longer interest charging plans can range from months to years and charge an annual rate of up to 36%!

2. What Are the Fees?

While BNPL programs often advertise interest-free installments, it is vital to read the fine print. Some programs may charge hidden fees or penalties for missed payments, which can significantly impact the overall cost of your purchase. These fees can range around $7 per missed payment. With the payments typically spaced out every two weeks, this added fee could add up quickly if you miss your payment date. Being aware of the terms and conditions ensures that you make an informed decision, preventing any unpleasant surprises down the line. Transparency is key when entering into a BNPL agreement.

3. Do You Have a Plan to Pay it Off?

Overextension — or taking on more debt than you can afford — is one of the biggest risks of using buy now, pay later, partly because of the delayed payment structure. For example, a $100 purchase becomes $25 at checkout with a no-interest, pay-in-four plan. This can lead shoppers to buy more or make a habit of splitting up purchases. Before succumbing to the convenience of BNPL programs, it is essential to evaluate one's financial situation. Assess whether committing to additional payments in the coming months aligns with your budget and financial goals. While the immediate gratification of acquiring desired items may be tempting, understanding the potential long-term consequences is crucial. Ask yourself if the joy of the purchase is worth the extended financial commitment.

4. Impact on Your Credit Score

Another factor to consider before embracing BNPL is its potential impact on your credit score. While many programs do not conduct traditional credit checks, missed payments or defaulting on installments could negatively affect your credit history. This can have broader implications, such as hindering your ability to secure loans or credit in the future. Understanding the consequences of BNPL on your creditworthiness is essential for making responsible financial decisions.

5. Will You Need to Make a Return?

If you think that any of the gifts you have purchased may potentially have to be returned, then it is best to avoid BNPL programs all together. Buy now, pay later returns can be tricky because they need to go through two parties: the store you bought the merchandise from and the buy now, pay later provider that financed it. If there's a dispute about a return, your refund may be delayed, and some shoppers may have to keep making payments until the dispute is resolved, according to a September 2022 report from the Consumer Financial Protection Bureau.

6. Can You Pay with Cash?

Consider starting a "mini budget" to prepare for holiday expenses? You could make a list of everyone that you need to buy for and how much you are prepared to spend on each person. Then start setting aside money in the weeks leading up to your holiday spending, ideally a high-yield savings account. If you don't have extra cash to set aside, consider rethinking your holiday shopping instead of financing it. The allure of delaying payments may draw you in, but consider the length of time that you will be paying off the item and if that can fit into your budget.

The holiday season's excitement and the allure of BNPL programs may create the perfect storm for impulse spending. Before diving into the world of deferred payments, take a moment to reflect on your financial situation and goals. While BNPL can offer convenience, it is crucial to weigh the potential risks and hidden costs associated with these types of programs. By approaching holiday shopping with an informed perspective, you can ensure that your festive celebrations are both joyful and financially responsible.

If you would like to receive more information on making smart money moves for your future, be sure to contact us today!


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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. https://Bit.ly/KF-Disclosures

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