Benjamin Franklin once said, “Don’t put off until tomorrow what you can do today.”
Companies such as Affirm, Afterpay, Klarna, Pay in 4, Uplift, and Zip are taking a unique spin on this famous quote.
These platforms lead the charge on the Buy Now, Pay Later (BNPL) model. They allow you to purchase electronics, concert tickets, clothing, groceries, airline tickets, and more by splitting the payments up instead of it being an upfront cost.
The problem? These weekly pay installments have payment plans lasting four weeks or more, which can lead to a large chunk of your monthly income going to new bills.
Understanding Buy Now, Pay Later
We live in a constantly changing economy where being able to split payments or defer a large withdrawal is considered a necessity.
Avoiding high-interest credit cards and BNPL platforms offering interest-free payments makes using them appealing. Even drawbacks like not benefiting from payment history or charging interest on top of taxes are not deterrents.
BNPL resembles the outdated layaway plan with one difference—consumers no longer need to pay off the item to receive their purchase.
This model offers instant gratification, making it easy to ignore how multiple small payments can add up and cause financial strain.
The problem with the BNPL model is that it encourages consumers to finance items they should purchase in cash or might not need.
In one week, imagine making the following purchases—$100 shoes, a $35 skirt, $99 earphones, and a $45 dress.
Using a BNPL platform, you initially only paid $25 for the shoes, $8.75 for the skirt, $24.75 for the earphones, and $11.25 for the dress.
Separately the installments might not seem like a lot. However, the combined weekly payments for the purchases add up to $168.50. Making these payments every week can take a hit on your finances.
Thinking Beyond “Buy Now, Pay Later”
We need to think smarter about our spending habits. Doing so can be the difference between financial health and financial struggle.
Instead of buying now and paying later, you should consider saving money to buy later. Opening a savings account through financial institutions is a much safer alternative to BNPL platforms.
Pelican State CUÂ and similar financial institutions offer savings accounts, such as Christmas Clubs or vacation shares, that make saving easy. Plus, signing up for Financial Wellness Programs can help you budget to increase your savings.
Christmas Clubs
Christmas Club savings accounts allow you to prepare for the holidays without hurting your bank account. They work by automatically transferring money into a savings account so that it builds each month.
Money from the account automatically disperses the first week of November. You can withdraw the money earlier but with a penalty.
Pelican’s Christmas Club offers a wide range of benefits for members, such as:
- Dividend rates far above the national average
- Earn dividends on the entire balance
- No monthly service fees
- No minimum deposit or balance requirement
Vacation Shares
Similar to a Christmas Club savings account, Vacation Shares build up your savings through automatic transfers. One major difference is that you can withdraw funds whenever you need them without a penalty.
Pelican’s Vacation Shares offer benefits like:
- Dividend rates far above the national average
- Earn dividends on the entire balance
- No monthly service fees
- No minimum deposit or balance requirement
Financial Wellness Programs
If you’re having trouble saving because of debt or budgeting, speak to your local credit union or other financial institution to see how they can help. Many of them offer financial wellness programs for free.
You can find reliable and well-vetted institutions through The Opportunity Finder. The search engine connects those in need to over 17,000 local Community Development Financial institutions (CDFIs), Minority Depository Institutions (MDIs), and not-for-profit credit unions.
Pelican’s Financial Wellness Program allows its members to meet face-to-face with Nationally Certified Credit Counselors. The program equips its students with the knowledge they need to achieve financial wellness.
Graduates of Pelican’s program have become homeowners, bought their dream cars, and opened businesses.
Credit Scores and Buy Now, Pay Later
It’s typically impossible for BNPL platforms to strengthen your credit score because these companies do not report on-time repayments.
More effective ways of building credit exist. If you need money for a big-ticket item, visit a trusted financial institution to get recommendations on low-interest loans.
Meet with a Nationally Certified Credit Counselor if you need assistance improving your credit score or loan recommendations. Financial institutions, such as Pelican State Credit Union, offer these services for free to their members.
Letting Go of Buy Now, Pay Later
As the BNPL method becomes more mainstream, we will continue to see companies add the option to increase their access to the consumer market.
However, this doesn’t mean that you should use it. Ask yourself if the purchase is necessary and research safer, alternative payment methods before purchasing an item.
Once a Pelican State CU member, always a member—through life’s milestones, we’ll always be there to help you with your financial needs. Your Financial Family for Life. Give us a call at 800-351-4877.
