Warning! A Holiday Spending Trap: Buy Now and Pay Later Loan
Hi Reader, Happy Holidays!
Everyone likes a surprise this time of year. But all surprises are not good. A mismanaged Buy Now and Pay Later loan is an example of a bad surprise.
You are eager to make this holiday season special for your family. You see a sleek kitchen appliance on sale.
The Buy Now, Pay Later option seems like the perfect solution to spread out the cost. But life gets hectic, as a pharmacist you are in peak season. And you forgot to make a payment.
The result? Sky-high interest charges and a late fee that turn your bargain into a money headache.
This story isn’t unique. The holidays are here. You could be drawn to the ease of Buy Now Pay Later options. And unaware of the pitfalls that can lurk beneath the surface.
Why This Matters
BNPL services are advertised as flexible and convenient. But they can lead to overspending and financial stress. These loans can create a false sense of affordability. They often result in debt cycles that are hard to escape. Especially, if you are already under financial strain.
BNPL was once most popular for beauty and apparel purchases. In recent years, it has branched out into other areas like travel, pet care, groceries, and gas.
Some BNPL loans are not reported to a credit bureau. This won’t help you build a good credit history like a credit card would. I want you to understand these risks so you can make smarter decisions this holiday season.
This is how a seemingly harmless loan can spiral out of control.
1. Spending Without Limits
BNPL reduces the immediate financial burden of spending, making it easier to overspend. You get the option to split payments into smaller installments. This can make even expensive items seem manageable. This may tempt you to buy more than you can afford.
2. Missing Payments
Missed or late payments often come with high fees or interest. And quickly ballooning the original cost of the purchase. I have seen interest rates up to 35%.
3. Misunderstanding the Loan Terms
See whether you’ll be paying any fees or interest. How much are they? If the plan charges interest, check the rate and compare it to other credit options. (You may be able to find a lower-rate option.) See if there are penalties for missed or late payments. In some cases, a late payment can trigger a higher interest rate that will apply to the entire balance.
Avoid the Trap
1. Set a Holiday Spending Plan
Create a feasible budget and stick to it. Prioritize gifts and expenses that matter most, and avoid impulse buys.
2. Think Beyond Monthly Payments
Before using BNPL, calculate the total cost of the purchase. Include the potential fees or interest if you miss a payment. Ask yourself: Is this truly worth it?
3. Know the repayment terms
Some companies may require biweekly payments over a month-long period. Others may give you three months, six months, or even longer to pay off your purchases.
4. Understand the Return Policy
If you want to return an item you bought via BNPL, it can get complicated. You should get your money back. But there can be a delay until the merchant informs the BNPL lender of the refund. You may have to keep making payments in the meantime.
The Reward - You Win!
When you avoid the BNPL trap, you’re left with more financial freedom and less stress. Instead of worrying about surprise fees, you can focus on enjoying the season. And build meaningful memories with loved ones.
Tips for Sustaining Smart Spending
- Track Expenses: Use apps or spreadsheets to keep an eye on your spending habits.
- Build a Cushion: Create an emergency fund for unexpected costs during the holidays.
- Educate Yourself: Stay informed about financial products and their risks.
A Final Thought
The holidays should bring joy, not financial regret. I think, being mindful of spending and cautious about BNPL loans, you can protect your wallet. And start the new year on a stronger financial footing.
Let’s make this season about connection and gratitude, not debt. Take charge of your finances today—you’ve got this!
🎓What I Have Learned
Learn to choose quality of life over standard of living. - Vicki Robin
✒️Guest Author
Have you ever wondered why it’s tough to reach your financial goals, stick to a budget, or keep up with New Year's resolutions? Dave Jacobson, a nationally recognized personal finance expert and the founder of Coach Connections, LLC, shares his answer. Read his blog, Long Term Financial Goals Seem Hard? Tips for Success You Need to Know.
📝Knock out these money-related tasks now to help you finish the month strong
- The deadline to contribute to most 401(k) plans for the 2024 tax year is Dec. 31. Even if you can’t afford to max out your 401(k), it’s important to at least contribute enough to unlock your company match. Otherwise, you’re leaving money on the table. Check with your plan administrator/advisor for guidance.
- The deadline for Flexible Spending Accounts or FSAs, is Dec. 31. FSA money is use-it-or-lose-it, so you should definitely use it to cover qualified purchases.
- Nobody likes thinking about their estate plan so use Dec. as an “artificial deadline month” to motivate you to take care of business. Review important documents like your will, trust and power of attorney, paying extra attention to any life changes that impact your beneficiaries. Better to do it now before you need it.
📖Money IQ - Your chance to gauge your money knowledge
IQ Question
What are the names of the three big credit bureaus in the U.S.?
A. Experian, Equifax, TransUnion
B. Visa, MasterCard, AMEX
C. Wells Fargo, Credit Karma, Bank of America
D. IRS, The Federal Reserve, U.S. Banking System
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Thanks for reading this far.
Thanks for your time and kindness.
Stay wise and healthy.
Celebrate.
See you before Christmas.
