While the holidays can convince you to spend far beyond your means, one simple decision can help you cut your spending nearly in half. All you have to do is ignore the Buy Now, Pay Later financing option when you shop online.
According to Klarna, one of the world’s leading BPNL banks, businesses see a 45% increase in the average checkout value from shoppers who choose this financing option. In other words, the average shopper nearly doubles their spending just because they don’t have to pay for everything in one lump sum.
What’s a boon to a retailer’s bottom line could spell trouble for your wallet. Let’s look at why this financing plan is so controversial, and what you can do to keep spending under wraps this holiday season.
Why Does Buy Now, Pay Later Financing Cause You to Spend More
BNPL financing is a point-of-sale loan offered by the biggest online retailers at checkout. Most users choose the four-installment option, which breaks up the final cost into four equal payments with no interest.
Few people are immune to seeing their total drop to 25% of its original cost. Knowing you only have to pay for the first quarter of your bill today, you might add more items to your cart.
Spacing out your payments isn’t necessarily a bad thing — credit cards and lines of credit offer the same flexibility in your spending. The problem arises when you lose track of how many installments you have scheduled in the next six weeks or so.
If you use BNPL at every checkout, you can unknowingly commit to something you can’t afford just because you don’t have to pay for it all at once. And if you overcommit, you might miss a due date and face late fines or credit damage.
Treat BNPL Like an Online Personal Loan
BNPL financing isn’t inherently bad for you; it can help some people stretch their budgets when used wisely during a tough time of year.
Think of it like a personal online loan, which can be a short term answer in financial emergencies. You would only apply for an installment loan online after you confirm you can cover the cost of borrowing.
This budget check-in is an unspoken rule of borrowing money online that helps you choose a loan that you can afford.
Apply this rule to BNPL financing, too. Always check with your budget before you split your bill into four installments to make sure you can handle every payment in your future — from the first initial installment to the final one.
You shouldn’t have to stretch your budget to make these payments either. You should be able to save money while you pay off your BNPL or installment loan.
After all, you never know what might happen in the future. While you might be able to cover your payments today, an unexpected brake repair or vet bill can demand money, and your savings can help you juggle everything this holiday.
And that leads you to the most important money-saving tip of them all: review your budget often. Keeping tabs on your spending and comparing it to your plan can help you avoid consumer debt.
Don’t have a budget yet? Check out this guide on making a budget for help!
Read also:
Leave a Reply