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Buy Now Pay Later Tips.
No matter how you borrow money, it’s important to have a clear plan for how you’ll repay the borrowed amount so you can lower the risk of encountering future financial difficulties.
What is buy now pay later?
Buy Now Pay Later (BNPL) services are offered by many retailers as a way for customers to pay for goods. They allow you to buy an item or use a service immediately but pay for it later in a series of interest-free instalments over a set period of time.
You usually need to make a minimum payment when you buy the item online or at the store. The remaining payments are then automatically deducted from the bank account, credit card or debit card you used to set up your Buy Now Pay Later account.
For example, if you buy a $200 pair of trainers in a shop that offers a BNPL service. You may pay $50 up front, take your trainers home, then make three fortnightly payments of $50 each.
Buy now pay later is interest-free, but it is debt
With BNPL, you’re not charged interest by the service provider on payments and spreading them over time can make budgeting easier. However, Buy Now Pay Later still involves debt. You should bear in mind that if you use a credit card for your BNPL purchase, you may separately have to pay credit card interest and fees.
Ensure you’ve looked at the potential fees involved and are fully aware of what you’re committing to. If you have multiple BNPL purchases at one time, it can be tricky to keep on top of the different payments.
What to be aware of when you’re using BNPL services
1) Make sure you’re not spending more than your budget allows
While spreading out payments can make it easier to purchase items, try not to over-commit by making too many purchases in the same time period. Before you make a new purchase, consider the impact this may have, including on payment of essentials such as rent, food and bills. These should be prioritised ahead of any additional BNPL payments you are committing too.
2) Fees
Before signing up, check with the BNPL provider to understand what fees they may charge for missed payments.
3) Impact on your credit score
Missing a payment can negatively affect your credit score which could affect your ability to borrow money in the future.
Remember, these services are a form of debt so it’s important to understand what you’re committing to before signing up.
Top tips when using BNPL.
1) Purchase one thing at a time:
Understand your financial commitments and aim to have only one Buy Now Pay Later purchase at a time.
2) Consider linking your BNPL account to your debit card or bank account:
Rather than using your credit card, to avoid any credit card interest you may otherwise need to pay in relation to your BNPL purchases.
3) Set payment reminders:
By keeping track of when payments are due, you can reduce the chance of missing payments and having to pay late payment fees.
4) Keep your credit limit realistic:
You don’t have to stick with the limit the provider sets for you, you can reduce this to suit your budget and lower the risk of overspending.
5) Think about the full cost:
It’s important to think about the total cost of the item you’re buying, and whether it’s a ‘need’ or a ‘want’.
Need help?
If you’re a Westpac customer and are concerned about your finances, talk to us today on 0800 400 600. We’re here to help from 8.30am to 5pm on weekdays.