Don’t even think about a “buy now, pay later” plan until you read this.
- “Buy now, pay later” plans are very popular these days.
- They are offered both online and in local stores.
- Research shows that these plans can be a financial disaster for many people.
If you made a purchase online or in person, chances are you were offered a Buy Now, Pay Later plan. These plans are available for a variety of items ranging from computers to furniture to electronics. Essentially, the premise is that you get your item right away, but you borrow for it and pay off the cost over time.
While these plans may seem attractive — especially since they often come with incentives like no interest for a period of time — it’s a shocking statistic Ramsey solutions shows why you should definitely avoid them.
Because of this, you definitely don’t want to use a “buy now, pay later” plan
Ramsey solutions examined how people use Buy Now, Pay Later plans in a report titled The state of personal finances Q1 2022.
According to the report, around 21% of survey respondents said they used this type of plan. And many of those who chose to do so felt it was better than using credit cards to fund a purchase, with 79% of users saying they prefer that approach.
Unfortunately, while a BNPL plan (as it’s sometimes called) can seem attractive, the reality is that many people struggle with payments when funding purchases this way. After all, 60% of those who used this type of plan said they had a hard time covering the costs over the long term.
And that’s not even the shocking statistic that should forever stop you from signing up for a Buy Now, Pay Later plan. The most disturbing statistic in the report revealed that a whopping two-thirds of people using BNPL were still paying for their items even after they no longer owned them.
In other words, if you sign up for a “buy now, pay later” plan, chances are you’ll be wasting future income on something you won’t even use anymore. You limit your future spending options by spending money you haven’t even earned on something you won’t use long enough to pay off.
What should you do instead?
Ideally, instead of signing up for a BNPL plan, you should consider saving money and paying cash for every purchase you want to make.
In this way you avoid interest charges and do not tie up future income. You also won’t be stuck paying for items for so long that the purchase is just a distant memory haunting you with continued payments.
If you can’t pay cash for everything you buy, you might be better off financing the items with a low-interest personal loan that has a set repayment time and schedule. That way, you’ll know exactly when you’ll be debt free and how much the item will cost over time. This will give you a better idea of whether you’ll be using the item long enough to pay off before you get tired of it — and help you better understand whether it’s actually worth what you’re paying after interest is factored in.
Whatever approach you take, it’s clear that “buy now, pay later” plans are probably not the right one, so try to stay away from them whenever you can.
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