Want-it-now products without the price tag. Sounds like a dream come true, but do Buy Now, Pay Later schemes really provide the easy ride they promise for consumers? When it comes to money matters big promises usually involve a big line up of complicated conditions. So what do you need to know before you sign the dotted line?
By Michelle Balogh, Money Maven.
Many companies heavily market a range of credit, interest-free and rental schemes as a part of their sales technique. When faced with the opportunity to take home that designer sofa you’ve been salivating over for months or the HD TV that will turn your living room into a cinema experience, it’s hard to turn away an offer to put price tags off till another day. But taking up a Buy Now, Pay Later offer could mean that you end up paying more for goods overall, by way of interest and additional payments.
There are two main types of offers that companies are peddling to consumers. The first involves payment by interest-free installments, whereby you make monthly payments for your goods over the specified period. Using this scheme, your monthly payments will begin as soon as you take your goodies home from the store.
The second is the classic Buy Now, Pay Later scheme, where you don’t have to pay the full amount for your product until after the promotion period ends, creating the illusion of a long delay before you hand over your dollars. However these schemes do involve some payment during the promotional period, you often have to make payments in the form of an account keeping fee and minimum monthly payments from the moment you leave the store. There may also be a one-off establishing fee involved.
Minimum monthly payments are small and will not be enough to pay off your debt by the end of the promotional period so it is after this time that the bulk of your purchase is made, as suggested in the marketing. The trick to making the most of these schemes is to pay off your item in full and on time. If paid late, you’ll start paying interest at whopping rates (often around the 27% mark) and could end up paying more than if you’d purchased the item using a credit card.
If you’re a disciplined, savvy spender, Buy Now, Pay Later schemes could be a great way to get the items you need now whilst simply adding another regular payment to your budget. If not, we recommend being wary before you let impulse spending take hold.
Top factors to consider when buying now, paying later:
- Ask yourself if you really need the item and whether it’s worth the repayments. If making repayments is going to put pressure on your tight finances it may not be worth the stress.
- Read the fine print. Interest-free may not mean fee-free – watch out for hidden costs. This contract is a legal document like any other, understand what the expectations are and what your rights are as a consumer. Be aware of any increased payments should you take longer than the specified time to pay off the full amount.
- Set up a direct debit to meet regular repayments. If you don’t feel confident enough that you’ll have the money in your account then you shouldn’t be making the purchase!
- Protect your credit rating. If you aren’t able to meet repayments this could affect your credit rating. You will be penalised if you miss a monthly payment.
- Know your spending personality. If you are a budgeting babe then you might as well take advantage of all the deals that stores offer to make the most of your shopping experience. If not, be wary, and never spend too soon.
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