NEW YORK (AP) — Between rising prices and dwindling job growth, using “buy now, pay later” on everything from concert tickets to fast food deliveries is becoming increasingly appealing. But greater use could also mean greater trouble, as more people fall behind on repaying these loans.
Buy now, pay later loans gained popularity during the pandemic, especially among young people. While these loans can help you make large purchases without paying interest or undergoing a hard inquiry in your credit report, they can also easily be overused.
About 4 in 10 Americans under the age of 45 say they’ve used “buy now, pay later″ services when spending on entertainment or restaurant meals, or when paying for essentials like groceries or medical care, according to a poll from The Associated Press-NORC Center for Public Affairs Research.
Buy now, pay later loans were not previously reported to the three major credit reporting bureaus. But consumers will soon see the impact of buy now, pay later loans on their FICO credit scores.
Whether you’re a first-time or recurring user of buy now, pay later plans, here are some expert recommendations to use this tool responsibly.
Focus on needs vs. wants
Buy now, pay later plans divide purchases in monthly installments, typically in four payments. These loans are marketed as having low or no interest. Klarna, Afterpay, PayPal and Affirm are among the most popular buy now, pay later companies.
These loans should ideally be used for large purchases or necessities, said Lauren Bringle, Accredited Financial Counselor at Self Financial.
Bringle recommends asking yourself these questions before purchasing: Can I survive without this purchase right now? Do I need it for work, school, or a basic household need?
Buy now, pay later is best used when you have a plan for the purchase, not for impulse buys. For example, when you need to buy a computer for school or a new refrigerator for your house, recommended Tyler Horn, head of planning at Origin, a budgeting app.
Pause before purchasing
Before deciding to take out a buy now, pay later loan, it’s a good idea to pause and consider if it’s the best financial decision for you, recommended Erika Rasure, Chief Financial Wellness advisor for Beyond Finance.
Buy now, pay later plans can be positive budgeting tools when used strategically. However, it’s essential you know your spending behaviors before using them, said Rasure. If you’re an emotional spender, it might be hard for you to moderate your use of this tool and you could end up adding to your financial stress.