Buy Now Pay Later, Too Good to be True?

With just a simple click of a button, consumers can purchase items they want and pay off the balance in payment installments. Seems too good to be true, right? As Buy Now Pay Later (BNPL) programs have been on the rise over the past few years, do we fully understand the ramifications of BNPL? We wanted to explore the darker side to Buy Now Pay Later and how Neighborhood Credit Union can help. 

BNPL is a short-term loan that provides consumers with a way to get the item they want and in return, the payment is broken down into “easy” payment installments. BNPL programs have skyrocketed into popularity over the past few years as day-to-day prices have increased steadily, and it has become common for consumers to come across a BNPL option in both online and in-person retail stores.  

BNPL can seem like the better option when it comes to checking out because of how they tend to advertise themselves – low to no interest, no hard credit checks – but in the long run is it really the better choice?  

While BNPL may seem like the answer to all your consumer needs, it might not be that simple. According to a study by Barclay, 36% of consumers who have used BNPL programs do not understand the repercussions of missing payments or not making payments on time, and 39% do not understand how BNPL program's function. 

During the time of purchase, a BNPL program might seem appealing for the higher-ticketed items you normally would not be able to afford. But what happens after you purchase two or three of those high-priced items? According to the same study, 36% of consumers admit to using BNPL programs to make purchases that they otherwise cannot afford, and according to this article by CNBC, nearly 30% of consumers who have utilized BNPL programs struggle to keep up with the payment and have had to skip paying essential bills to avoid defaulting.  

While consumers may become overwhelmed with the amount they owe to a BNPL, Neighborhood Credit Union provides options to help you avoid getting caught in the Buy Now Pay Later cycle. Let us take a look at the different credit cards Neighborhood Credit Union has to offer. 

While BNPL is similar to credit cards in that both provide consumers with a way to purchase an item right away and make payments later, BNPL does not come with the benefits of credit cards.  
Many consumers can utilize credit cards to build up their credit score and in return will have higher chances of success when applying for loans or mortgages. Not all BNPL platforms report to credit agencies, so someone using BNPL might not see a positive change in their credit score.  

Credit cards also tend to provide benefits that BNPL does not. Consumers can enjoy cash back, points, airline miles, and more depending on the type of credit card they utilize to make purchases! Here at Neighborhood Credit Union, we have two credit cards with equally great benefits.  
 
Get 0.0% APR (Annual Percentage Rate) for six months on a Visa Platinum credit card, enjoy no annual fee, no balance transfer fee, and a variable interest rate of 8.25-18.00% APR after the promotional 6 months.¹ Our Cash Rewards credit card has 1.50% cash back on all purchases, with no cash back limit, no annual fee, no balance transfer fee, and a variable interest rate of 11.25-18.00% APR.²  

While BNPL tends to advertise low to zero interest, they can actually charge up to 30% APR depending on the items purchased. Currently, the national credit card average is 20.47% APR, and can go as high as 25% APR. According to mycreditunion.gov, credit unions can never go higher than 18% APR due to legislative ruling. The national average for credit union credit card rates sits around 9%, which is significantly lower than other credit cards companies. With this in mind, credit unions present a solid option when it comes to deciding on a credit card! For more information on our line of credit cards, click here. 

While a Buy Now Pay Later might seem like the perfect answer to your consumer needs, it might not provide everything it has promised, and some may find themselves spiraling into more debt than they can handle. If one utilizes multiple BNPL programs, it could become easy to forget or make payments, debt can build, and added fees and ballooned interest rates can start to add up. When needing a pay-later option or intentionally utilizing credit cards for the rewards, using a Neighborhood Credit Union credit card can make your larger purchases painless with predictable rates, no annual or balance transfer fees, and added rewards.  

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¹Must be 18 years or older to apply. Applicants under the age of 21 may require a co-signer unless independent means of repayment can be established. Introductory APR only applicable to new credit card applications. 1.99% Introductory APR for 6 months from issuance of the card on balance transfers and purchases. After the introductory period, APR will be adjusted based on creditworthiness and balance transfer fee will be at 3%. Rates are variable and subject to change and will be calculated based on the Wall Street Journal Prime Rate and may go up to a maximum of 18.00%. Minimum payment is 3% of total new balance or $35.00, whichever is greater. Cash advance fee is $10 or 3.00% of the amount of each cash advance, whichever is greater. Late and returned payment fee: up to $35. A Foreign Transaction fee of 2.00% will be applied in US Dollars to each transaction conducted outside of the United States. Additional limitations, terms and conditions may apply. Equal Opportunity Lender.

²Must be 18 years or older to apply. Applicants under the age of 21 may require a co-signer unless independent means of repayment can be established. Minimum credit line is $5,000. APR based on creditworthiness. Rates are variable and subject to change and will be calculated based on the Wall Street Journal Prime Rate and may go up to a maximum of 18.00%. Minimum payment is 3% of total new balance or $35.00, whichever is greater. Cash advance fee is $10 or 3.00% of the amount of each cash advance, whichever is greater. Late and returned payment fee: up to $35. A Foreign Transaction fee of 2.00% will be applied in US Dollars to each transaction conducted outside of the United States. No balance transfer fees. Additional limitations, terms and conditions may apply. Equal Opportunity Lender.