Here at Bo+Tee we always want to make sure you, our loyal customers, are spending your money responsibly. That’s why we’ve invited the experts over at @her.capital to give us some tips and tricks when it comes to Buy Now, Pay Later schemes. If you don’t already know then HerCapital is a non-profit organisation who empower women to invest in their future. The company was founded by Zabreen Khan and Rabiya Ather and has been featured in the likes of Forbes and Betches, impressive right? So grab a cuppa, pop your feet up and delve into HerCapital’s world of safe spending...
We've all been there: our online shopping cart is full of $400 worth of clothes that we've been eyeing for a month but will probably never actually purchase… but then again, there is the option at checkout to "buy now and pay later", and we'll only have to pay around $15 a month for 24 months. It's tempting; paying only a little bit per month definitely feels easier than making a large purchase at once. But is it worth it? We investigated.
"Buy Now, Pay Later" (BNPL) companies such as Afterpay, Affirm, Klarna, and Quadpay have taken off recently, with the BNPL industry growing 215% year over year according to Adobe Analytics. In case you haven't seen how BNPL works, companies like Affirm or Afterpay partner with various retailers to offer a point of sale loan without needing a credit card. These financing methods can help you spread out the costs of your purchase over time with low or sometimes even interest free payments. Depending on the company, they might offer a certain time period or a certain number of payments to complete your purchase.
These companies have become so popular for a reason; a few key benefits of using a BNPL option include:
- First, if you keep to their payment schedule, there is usually no or very low interest rates. So, if your credit cards are maxed out or you just don't feel like taking on additional debt, this can be a great option.
- Second, applications for BNPL are usually pretty quick and easy and don't require a strict credit check. So, it allows greater purchasing power and the ability to borrow money to those who may not be approved for a credit card or have a low credit score.
- Furthermore, based on how often you're paid or your typical monthly budget, it can be hard to make a large purchase all at once. BNPL options allow greater flexibility to make purchases that may not have been feasible all at once otherwise.
So, if you're thinking, "Wow, there's no interest, no harsh credit checks, and I can break down all my shopping into small manageable chunks, is this too good to be true?" the answer is…well maybe.
BNPL options can have some important drawbacks that are worth noting before you hit "purchase" on a new Fall wardrobe and a Peloton bike:
- The first, and most important long term downside is that these programs can promote irresponsible spending habits. According to a Survey from Lending Tree, two thirds of people who used BNPL financing said they spent more than they would have otherwise, and almost half said they wouldn't have made the purchase at all if BNPL wasn't available. Responsible spending is doing so within your budget, not trying to force something to fit in it.
- The other key thing to know about BNPL options is that if you miss one of their payments, there can be a number of serious consequences; make sure to read the fine print of what you're signing up for, as it varies from company to company. There typically are late fees for missed payments, and if you fail to pay off your purchase within the agreed upon time frame, you can be hit by interest charges as high as 30% APR! For reference, that's nearly double the average APR for most credit cards! So while BNPL seems like a cheap option at first, if you aren't able to stay within your agreed upon payment scheme, you will likely find yourself paying more than if you bought it outright, or in greater debt than before.
- You also can't use BNPL to build credit, as these companies don't report to credit bureaus. However, your credit score can be negatively impacted since BNPL lenders will often tell credit reporting companies of a missed payment.
So is it worth it to use BNPL?
Well, it depends. It really all comes down to responsible spending and being financially literate. Using BNPL financing every so often for a one time large purchase that you have intentionally planned for in your budget should be just fine. However, using it for impulsive shopping sprees and to buy things you can't afford will likely end up doing you more harm than good. Borrowing money is totally okay as long as it is for the right reasons and what you're purchasing will add serious value to your life.
For more financial tips and information, check out @Her.Capital on Instagram or at their website hercapital.org!
*Disclaimer: Bo and Tee is an online pureplay fast fashion brand selling women’s gym clothes and athleisure wear internationally. We’re not investment or financial advisors and we don’t provide legal advice but we are passionate about our community and helping everyone make good, informed decisions. The contents of this blog are intended to be educational and raise awareness of the issues covered, it also contains information and opinions obtained from third party sources. We make no representation that the information provided (including any from any third party sources) is complete or error free and we accept no responsibility or liability for any loss or damage incurred as a result of any actions anyone may take based on or as a result of any of the information provided.