Jessica Quindlen: [00:00:00] Welcome back to the Sound Cents Podcast. I'm Jessica Quindlen. Today we're discussing navigating Buy Now, Pay Later (BNPL). I have with us Bree Shellito, our Senior Manager of Community Impact. Hello, Bree.
Bree Shellito: Hey, Jess.
Jessica Quindlen: And Emma Protsik, our Financial Coaching Supervisor. Hello, Emma.
Emma Protsik: Hi there.
Jessica Quindlen: All right, let's just start right off. Can you explain what exactly is BNPL and how often is it used?
Buy now, pay later.
Emma Protsik: BNPL is a form of short-term financing. It's an option that's available when you are purchasing something. So, what that looks like is you will have a smaller cost up front, but what they do is they break up the total cost of whatever that purchase was in different installments.
And that does vary by which BNPL servicer you are going through. A lot of these are going to be interest free but some of them might charge fees, especially if you have any late payments. What they'll do is they'll set up an automatic payment withdrawal, typically through that debit card or credit card that you're paying with.
A lot of the popular providers that you might have seen if you're doing any online [00:01:00] shopping could be Affirm, Afterpay, Klarna. There's a lot out there. BNPL is often used for online shopping. But some providers are actually offering a kind of form of a debit card a virtual debit card you can get for in store purchases as well. It is estimated by Juniper Research that the global BNPL is expected to grow $900 million as far as people using it by 2027.
Bree Shellito: It's gotten really popular. I see it on almost every site I shop on.
Jessica Quindlen: So do I. I mean, the thing is I'm seeing something for $200, but right underneath, I'm seeing, but four $50 [payments]. You know, four $50 looks a lot sweeter than one $200.
Bree Shellito: Especially if it's something you're not super excited to buy. Or even if you are.
Jessica Quindlen: Yeah. Or something you're excited to buy, but you don't need it.
Bree Shellito & Emma Protsik: Right.
Jessica Quindlen: Like shoes!
Emma Protsik: The average too, as far as those BNPLs, you know, what people are taking out just at about $132 and almost 50 percent of the BNPL financing that's happening is actually for [00:02:00] clothing items.
Jessica Quindlen: Oh, interesting. So, what are the advantages of using BNPL?
Bree Shellito: Yeah, there's a few advantages. The one that we see often when we were looking into research in this topic, we really saw that a lot of times folks are using this because they've had other credit applications denied.
It's a very low barrier way for somebody to get something financed. It's kind of the new age layaway if folks know what that is. Used to go into the Kmart or wherever else and get to finance the purchase over time and then take it. Whereas now, you actually get the item, and you're just paying it off. As Emma said, usually it does not have interest attached.
It does just have fees if you don't abide by the schedule that it requires. Spreading out the cost on what you need to buy can certainly be an advantage, getting to spend a little less over the amount of time.
Emma mentioned that it's [used] on clothes. I mean, for all we know, those could be clothes for a new job. If you're wanting to buy some new clothes for starting a job, but you're not going to get paid right away, what a great use of it.[00:03:00]
Also, there's a lot, even on Amazon, where you can try before you buy. That can sometimes be a BNPL if you've decided that you want to check it out and then return it before the requirement if you didn't like it. So, it's almost that lack of commitment towards the item that sometimes leads into this and then you can spread out that cost again.
Flexibility is huge when they want to buy something but don't have the full amount up front especially if it's something that's an emergency. I've seen this on a lot of different websites. Could be books for school or again, something for your job or really anything that you need. Maybe a kiddo needs something.
Then really, the huge advantage is avoiding high interest debt. If you need to spread out a purchase, but don't want to put it on a credit card because you know you won't get it paid off in time, that's huge. You're avoiding the interest. As long as you can stay within the terms that you've agreed to, there typically is not interest or fees attached.
Jessica Quindlen: Fantastic. So those are all the advantages, the great parts of it. What are some potential pitfalls that consumers should be [00:04:00] aware of before they decide to buy now, pay later?
Emma Protsik: I think the biggest one is again, is just those auto withdrawals. They will automatically pull whatever schedule they let you know when you're signing up for the service. So, make sure you're looking ahead at your budget and you do have a plan in place to make sure you can make those payments.
With most BNPL services those payments, those installments that are being auto withdrawn are not going to be reported on your credit report. So, you won't get any of that payment history, but they will definitely show up if you're missing a payment. If it's going into collections, that's when it could negatively affect our credit score. So, keep in mind that that could be something that you run into.
And then of course too, just the potential for overspending. We've mentioned how it's just about everywhere. Now you see those BNPLs and it is very tempting. I've seen some individuals start taking out a lot of these different BNPL services, and it gets overwhelming, too much to manage. So that overspending is something you can be [00:05:00] thinking in your brain when you see that lower.
And then there are some longer terms BNPL. A lot of those servicers will offer some sort of extended financing. Please, please, please just check out those interest rates. Make sure you understand how much that you'll be charged for those, because those can get anywhere up to/over 30%.
Jessica Quindlen: Oh, that's not nothing. And really quick, you can use credit cards for BNPL or does it have to be a debit or checking account?
Bree Shellito: I've seen it where you can use a credit card, just depending on the servicer. The one through Amazon, I've definitely seen that option. So, I mean, that's almost potential to be double.
Jessica Quindlen: I was going to say, that to me feels like a disadvantage because yes, the BNPL might be a 0% interest, but if you can't afford even that $50 that month and you can only afford $20, you're paying interest on the other.
So just another thought I had where I'm like also be careful if you're putting it on a credit card. We've discussed this a little bit, but how can BNPL [00:06:00] affect someone's overall financial health and their kind of overall picture?
Bree Shellito: Yeah. As Emma was mentioning, definitely the overspending. We've talked on prior podcast episodes about subscription services. This is similar in that it's, “Oh, $5. That's so reasonable.” You know, $50 instead of $200.
But as soon as you get several, the ability for that to really add up can, get out of hand. That debt cycle, what we were just talking about, especially if you're then putting it on a credit card, falling into that and falling behind can be a big deal.
We see that a lot with payday lending. So same thing goes here. It's kind of that borrowing mentality and getting into that can get you in trouble and get a little out of hand, especially if you're going to miss payments and there's going to be fees, the interest rate being zero means nothing. If you're paying those fees, that's going to add up quickly, even [quicker] then some interest rates.
Also, the negative impact on credit, like Emma mentioned, if you're not making those payments. It's not helping you if you are, and yet it is going to hurt you if you're not.
Jessica Quindlen: What advice would you [00:07:00] give someone who's looking to utilize BNPL?
Emma Protsik: I feel like I always sound like a broken record on the podcast. This is a tip I share for a lot of these.
Bree Shellito: It's a great tip.
Emma Protsik: But seriously, wait a day for those purchases. Give yourself 24, maybe even 48 hours. Take some time away from the computer, however you're doing that ordering, and figure out if you actually need it.
Bree Shellito: That just happened to me, Emma. And I heard your voice in my head. I was at the furniture store. There was a great deal on this massage chair. And I'm like, “I could use this. This'll be great.” I went home, I slept on it. I'm like, “where am I going to put it?” What's it going to look like? But I'm glad I waited and took a moment to think about it. I heard Emma, “just wait 24 hours.” I didn't want it 24 hours later. I really didn't.
Emma Protsik: It's tempting for that. So definitely waiting a day.
Bree Shellito: Yeah. And even with waiting a day, in the moment, if you're looking across to make sure your price matching the item. If you're in person, many retailers actually allow for price matching if you find a better price at another retailer. So, looking at that, doing your research, just taking a moment to make sure that you're getting a good [00:08:00] deal.
But certainly, the same goes for online. A quick Google search to look at that item and see if it's less expensive somewhere else. The possibility that it also has that BNPL feature on that website is high.
So just knowing that, but also making sure that you're getting a good deal. Don't just go with the retailer for that item because it offers BNPL. There are other options. So, comparing the pricing and making sure you're getting a good price even if you're spreading it out over certain payments.
Emma Protsik: Good thing to keep in mind. Some more advice would be, again, just sticking to that budget. We talked about the overspending but make sure it is something that's going to work out for that overall budget.
It's not going to get in the way of any other financial obligations, like bills that you might have, because then you might have to turn to other kinds of financing, whether that's high-interest credit cards, to cover those different needs that you have throughout the month.
Bree Shellito: Yeah. And even comparing those financing options. If you do have a credit card that offers great rewards and you intentionally are going to pay that off within the next one month, the possibility you might get those rewards that the BNPL didn't offer you [00:09:00] just knowing your situation and knowing what you're doing.
So, comparing not only just the pricing, but also what you're going to use to finance that purchase.
Emma Protsik: That just reminded me of something. I saw on one of my credit cards they're kind of doing buy now pay later. So, this is a Chase credit card. I have a couple with them, and I think it's a purchase over $120 on my statement. I can show you guys right now.
Jessica Quindlen: I just saw this, too. Game changer.
Emma Protsik: So, you can even maybe break up some of those purchases. Credit card companies are getting a little bit better for that. But again, just be so mindful of that snowball effect that can happen with taking on debt, pushing off those payments.
Jessica Quindlen: And the one thing I would say too about this, which I love too, because I have a Chase card as well, is that what you're breaking it up into, maybe it's $8 a month or $10 a month, is added to your minimum balance. And I just think that's just something to think about that you might just think, “Oh, $8, that's easy.” But can you do your minimum plus the $8? Just something to think about. [00:10:00] It's still a great thing, but just for awareness so that all of a sudden you don't withdraw and it's $150 and you're like, what is happening?
Bree Shellito: So can I do one more? Just a little kind of plug because I think a lot of our listeners may be listening to this because they use this service and they're considering it.
If you're finding yourself in debt and you're looking to get out, we do have our financial coaches. They're here to help offer multiple options, lots of different methods of paying that back. So just know that that's free for members and non-members.
Jessica Quindlen: And I think, you know, give yourself grace. I think maybe there are instances where BNPL isn't as we were joking earlier, us buying shoes or us buying fun massage chairs or something. There are moments - when you have a new job, your kids are starting school, your kids grew too fast and oh my gosh they need new shoes. There are things that happen that it's okay, give yourself the grace to take advantage of this.
Bree Shellito: And even a treat yourself moment, that's okay.
Jessica Quindlen: I will never say no to a treat yourself either.
Emma Protsik: Just make sure it fits in the budget, that's all we ask.
Bree Shellito: Thank you Emma.
Jessica Quindlen: Emma keeps us in line. Anything else to add?
Emma Protsik: No, I don't think so.
Jessica Quindlen: Awesome. Well, [00:11:00] that brings us to the end of our show. Bree, Emma, thanks so much for being here.
Bree Shellito: Thank you.
Emma Protsik: Thanks, Jess.
Jessica Quindlen: Thank you for listening to Sound Cents from Ent Credit Union. Be sure to follow our podcast as well as rate and review us. I'm Jessica Quindlen. I will see you next week, same time, same place.
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