Is Buy Now Pay Later right for you?

Please see detailed explanation of Buy Now Pay Later on my beloved website Investopedia. There are two key points here. Direct quote from Investopedia:

  1. Buy now, pay later plans often don’t charge interest and are often easier to get approved for than traditional credit cards or lines of credit are.
  2. Usually, it doesn’t affect your credit score when you use it but failing to pay or late payment can damage your credit score.

If people are good at managing their finances, they probably don’t need it. If they are not organized or disciplined with money, this can be very dangerous. It can lead into debt spiral.  It seems that it is only suitable for very small group of consumers.

Here is an example. The person already good with money, but somehow he or she need to buy something that he/she doesn’t have enough cash now. I used the word “need” rather than “want”. If a person is good with money and they don’t have the cash to buy something, they would save for it first to reduce the risk. Perhaps it is an emergency?  Actually, if a person is good with money, they must have enough limit on their credit card. Usually they would use credit cards because they want the rewards such as cash back or points. Buy now pay later doesn’t have rewards though. Perhaps they need longer payback period than credit card. If a person is good with money, they would have emergency fund that they can dip into. Perhaps, these days, emergency fund became a luxury for many families. They are very good with money, but their incomes are just not enough to keep up with the expenses for necessity even if they already work very hard. That is another big topic of unfair pay for the working poor.

If they can’t save for any emergency fund, that means they are living pay cheque to pay cheque. Then how can they generate savings to pay later for the current purchase? It still doesn’t make sense.

Perhaps if there is a Buy Now Pay later offer for an EV, I would consider. For example, it takes 1 year to save for an EV. If I buy it now, I can use one year to pay it off if the offer doesn’t charge interest for 1 year. Then, I can use the car now. However, my car is still working, there is no such urgency. I guessed it is all about instant gratification vs. discipline.  Or retail therapy vs. simple happiness? Need another post on this.

Just hope that you don’t get tempted into a debt problem.

Published by Worthfy

Financial literacy and counselling

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