This Shocking Fact Shows Why You Should Avoid “Buy Now, Pay Later” Plans

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Don’t even consider a “buy now, pay later” plan until you read this.

Key points

  • “Buy now, pay later” plans are very popular these days.
  • They are offered both online and through local stores.
  • Research shows that these plans can be a financial disaster for many people.

If you made a purchase online or in person, chances are you were offered a “Buy Now, Pay Later” plan. These plans are available for a wide variety of items ranging from computers to furniture to electronics. Essentially, the principle is that you get your item immediately, but borrow for it and repay the cost over time.

While these plans may sound appealing – especially since they often come with incentives such as no interest for a while – a shocking statistic from Ramsey Solutions shows why you should avoid them at all costs.

Here’s Why You Absolutely Don’t Want to Use a “Buy Now, Pay Later” Plan

Ramsey Solutions looked at how people are using “buy now, pay later” plans in a report titled The state of personal finances Q1 2022.

According to the report, about 21% of survey respondents indicated that they had used this type of plan. And many of those who chose to take advantage thought it was better than funding a purchase with credit cards, with 79% of users saying they prefer this approach.

Unfortunately, while a BNPL plan (as it is sometimes called) may sound attractive, the reality is that many people find themselves stuck with payments when financing purchases this way. As many as 60% of those who used this type of plan said they struggled to cover long-term costs.

And that’s not even the shocking statistic that should forever discourage you from signing up for a “buy now, pay later” plan. The most disturbing statistic in the report found that a whopping two-thirds of people who used BNPL still paid for their items even after they no longer owned them.

In other words, if you sign up for a “Buy Now, Pay Later” plan, chances are you’re spending future earnings on something you don’t even use anymore. You’ll limit your future spending options by committing money you haven’t even earned yet for something you won’t use long enough to pay for.

What should you do instead?

Instead of subscribing to a BNPL plan, you should ideally consider saving up and paying cash for any purchases you wish to make.

This allows you to avoid paying interest charges and ensures that you don’t tie up income that you will earn later in life. Nor will you be stuck paying for items for so long that the purchase is just a distant memory haunting you with continuous payments.

If you can’t pay cash for everything you buy, you might be better off financing the items with a low-interest personal loan that has a set time frame and repayment schedule. This way you will know exactly when you will be debt free and exactly how much the item will cost over time. This lets you better gauge whether you’ll use the item long enough to pay it off before you tire of it — and it helps you better gauge whether it’s really worth what you’re paying for after accounting for interest. .

Whichever approach you take, it’s clear that “buy now, pay later” plans are probably not the right ones, so try to avoid them whenever you can.

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