Are “Buy Now and Pay Later” Services Worth It?

If you’ve made an online purchase recently, you may have noticed the option to buy now and pay later via a third-party company or app at checkout. These opportunities seem to be more plentiful as an increasing number of companies are partnering with retailers to offer this service.

This option can be tempting – like a modern-day layaway service, except you get the items you’re purchasing before the item is paid off – but is it worth it?

We did a bit more research into these services and, while the specific details of each service may vary, have put together a list of items to consider before you finance your purchase this way.

Spending Outside Your Means

Let’s start with the basics. Sometimes, purchasing items without having to pay for them upfront can enable you to overspend. That’s why one of the things we always encourage consumers to consider before opening a credit card is whether they can manage the credit responsibly.

The models for each of these services vary slightly, but some of the companies do seem to actively discourage overspending by denying purchases they believe are outside of your budget. Others, however, make most of their money off late fees and don’t seem as committed to preventing you from making purchases you can’t afford.

Before you decide to buy now and pay later with one of these services, make sure you understand the financial commitment you’re making and whether your income and budget will allow you to make the payments on time once they’re due.

Impacting Your Credit

Some of these services prequalify you, which means they tell you how much money you’re likely able to spend when shopping. Depending on the service, this prequalification could hit your credit report as an inquiry; therefore, your credit score could take a slight hit. Others offer prequalification without a hard pull on your credit.

Additionally, some companies disclose that your credit could face additional dings once you use the service. Actions that impact your credit could include, but aren’t limited to, making a purchase, having an outstanding balance, and missing a payment.

Overpaying for a Product

The total amount you’ll pay for a product depends on the fine print of the service you use. Some don’t charge any interest, meaning you’ll spend the same amount as you would if you paid upfront. Others offer multiple payment options with varying interest rates (or APRs) based on your credit and/or the repayment term you choose.

In some of these instances, the interest you’re charged can be hefty, with some rates advertised as 15% APR or more. If you’re purchasing a big-ticket item or making several small purchases, these interest charges can add up quickly. This means you may end up overpaying for the product you purchased, spending more than you would have if you’d waited to be able to purchase it outright.

How Should You Pay Instead?

If these considerations make you hesitate before diving into buy now, pay later services, you may be wondering about the best way to pay. That decision is largely dependent on your individual circumstances, but could include:

• Paying with a debit card. When you pay with a debit card, the amount is taken directly out of your checking account. This limits your ability to overspend, as purchases above your balance will be denied. Debit card purchases also don’t impact your credit and, because you’re paying for the product outright, you don’t face interest charges.As an added perk, some debit cards may offer rewards when you use them for purchases. For instance, you can earn $.05 or $.10 on eligible purchases* when you pay with your PSECU debit card.

• Paying with a cash rewards credit card. Sometimes you don’t have the cash to pay upfront, and that’s OK, as long as you manage your credit and pay the purchase off responsibly. Paying with a credit card you already have established has a few perks in this instance. For instance, purchases won’t appear as a new line of credit as they may when using a buy now, pay later service, since the credit card account is already open. Note, though, that carrying a balance on your credit card or missing payments will negatively impact your credit.Paying with a credit card you already have also lets you be confident in the interest rate you’ll be charged, rather than having it possibly fluctuate at checkout. Additionally, if you pay with a cash rewards card like our Founder’s Card, you can earn 2%** or 1.5% cash rewards on every purchase, every time. If you pay off the purchase before interest accrues, that means you can save more money on the purchase in the long run.

Shop Confidently with Your PSECU Cards

There’s an appeal in not having to pay for your purchases upfront, but as we outlined above, it may not always be in your best interest to take advantage of these opportunities. Make sure you read the terms and conditions carefully when signing up and understand how much your purchases will cost you in the end.

While these services are relatively new, PSECU has been providing financial products like debit and credit cards to our members for over 80 years. Learn more about our debit card and credit card offerings and how they can help you shop with confidence today.

*You can earn $0.10 cash rewards on eligible purchases of $10 or over with a PSECU checking account and one or more qualifying monthly direct deposit(s) totaling at least $500. You can earn $0.05 cash rewards on eligible purchases of $10 or over for accounts with a PSECU checking account. Certain restrictions may apply. See the Visa^® Debit Card Rewards Program Terms and Conditions for full details.

**You can earn 1.5% cash rewards on purchases. You can earn 2% cash rewards on purchases if you maintain a PSECU checking account and qualifying monthly direct deposit(s) of at least $500. See the Visa^® Founder’s Card and Visa^® Alumni Rewards Card Rewards Program Terms and Conditions for full details.