Buy now or pay later – financial friend or foe?

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You’ve got a pretty good idea of what presents you want to buy for your loved ones but in the back of your mind you know that your bank balance is not looking flash so most of your Christmas spending will have to done by credit card.

You gather up your goodies and head to the check out, there you notice the signs that seem to offer the answer to your current money issues:

Buy now, pay later! Interest Free! …..Sign up in-store or on line, no waiting! 

Seems easy and what could go wrong you think. Past experience has taught you that one of the most crippling issues you have with your credit card is the exorbitant interest rate which means that you never can seem to get ahead with the repayments. All you need to do is provide a few details and you get to take your presents home and have them all wrapped up in time for Christmas and not even have to worry about pesky interest payments tying you down in the new year……

Almost too good to be true, but is it really? Lets stop to examine what really happens when you use buy now pay later service.

Whilst most do not charge monthly interest they almost certainly will  have charges such as establishment fees and account keeping fees, some will even have a processing fee. You also need to be oh so careful that you never default on a scheduled payment as you will be hit with a substantial missed payment fee.

This is a very important point as most buy now pay later providers do not check your ability to make repayments  As a result you could end up taking on more than you can actually afford and may have trouble meeting your repayments. That’s right you may not have noticed but what is really happening here is you have taken on another credit contract – it’s really a just like a loan or another credit card just with a different name and slightly different conditions.

What’s important about this is that should you miss a payment or pay it late then this can affect your credit score (what businesses use to determine if they want to offer you services in the future) as some buy now pay later providers report late payments to credit reporting agencies.

So whilst you’re in the queue waiting for the checkout please take a few extra minutes to consider your decision to use buy now pay later services carefully. If you decide to go ahead then please follow these tips for the best chance of success:

  • Read the terms and conditions carefully – don’t assume you know what they are, they will vary depending upon the buy now pay later provider you have chosen.
  • Don’t worry about the slight inconvenience you may cause to people behind you in the queue as you set about making sure that this is the right product for you. 5 minutes extra now can save you from many hours of worry in the future.
  • Make sure that you can afford the repayments for the full term of the contract. Remember you will be dealing with the consequences of the monthly repayments long after the joy of the purchase has worn off.
  • Do everything in your power to only have one buy now pay later contract at a time. Its very easy to loose sight of your commitments when you have more than one.

If you feel that you can comfortably deal with the points above then you very well may have found yourself a financial friend.  Just remember there is a long way to go before you can be best friends so please tread carefully.

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