American consumers have seen a rapid decline in shopping malls and shopping centers throughout the last decade. Nothing like the nostalgic suburban days at the local mall, right?
One of the reasons why we are seeing this shift is due to the increase in online shopping throughout the past years. As consumers, we now have an entire shopping mall in the palm of our hands through our electronic devices. In fact, 70% of the US population shops online. Along with the convenience of online shopping comes convenient payment methods, such as Buy Now, Pay Later loans.
Buy Now, Pay Later Loans offer shoppers the opportunity to finance their purchases by splitting the total owed into multiple payments over a period of time. Companies like Afterpay, Klarna, and Affirm are just some of the online creditor firms that you will see across e-commerce platforms while shopping online.
Do these payment methods affect my Credit Score?
While most BNPL loans do not require a hard credit inquiry, you still want to make sure you are aware of your finances and budget before making the full commitment. These companies often claim they do not charge interest, however they do typically charge hefty fees on late payments. If you have too many late or missed payments, the BNPL company will most likely freeze your account to stop further purchases and potentially send your loan off to a debt collector agency. At this point, the simple loan has now negatively affected your credit score and is on your credit report.
What happens if I return the item that I financed?
You might assume that you are no longer financially responsible for the item, if you return it, right? Not necessarily the case. With items financed through BNPL loans, you are still expected to make the payments even while the return is being processed. Additionally, these loans do not have the same dispute protections as a credit card.
Are BNPL Options Really that Convenient?
Ultimately, consumers are picking this type of payment method because of the convenience. With these payment options being offered on almost any type of e-commerce platform, it makes it easy to quickly rack up debt. For example: let’s say you go shopping and you decide to finance a new pair of Nikes, then a few days later you finance an air fryer, and then end the week with financing the latest iPhone. Suddenly those small payments have now multiplied, making it difficult to manage.
What Should We Do?
The next time you are shopping and see an item that you must have, before making the commitment to the Buy Now, Pay Later loan, press pause. Write the item down or put it in your notes section. Allow some time to think about the item and ask yourself, “Do I really need this item?” Retail therapy is real….sort of. Sometimes we need something more than instant gratification…. Like healthy credit management.
At ORNL Federal Credit Union, we want you to learn and thrive! If you have any questions in regards to financial education or our products and services, please contact us. We would be happy to help!