This Shocking Fact Shows Why You Should Steer Clear of 'Buy Now, Pay Later' Plans
- "Buy Now, Pay Later" plans are very popular these days.
- They're offered both online and by local stores.
- Research shows that these plans can be a financial disaster for many people.
Don't even consider a "Buy Now, Pay Later" plan until you read this.
If you've made a purchase online or in person, chances are good you've been offered a "Buy Now, Pay Later" plan. These plans are available for a huge variety of items ranging from computers to furniture to electronics. Essentially, the premise is that you get your item immediately but you borrow for it and pay off the cost over time.
While these plans may seem attractive -- especially since they often come with incentives such as no interest for a period of time -- a shocking stat from Ramsey Solutions shows why you should avoid them at all costs.
Here's why you absolutely do not want to use a 'Buy Now, Pay Later' plan
Ramsey Solutions looked at how people use "Buy Now, Pay Later" plans in a report called The State of Personal Finance Q1 2022.
According to the report, around 21% of survey respondents indicated they had used this type of plan. And many of those who opted to take advantage of it thought it was better than financing a purchase with credit cards, with 79% of users indicating they preferred this approach.
Unfortunately, while a BNPL plan (as it's sometimes called) can seem attractive, the reality is that many people find themselves struggling with payments when they finance purchases this way. As many as 60% of those who used this type of plan said that they had a hard time managing to cover the costs over the long run.
And that's not even the shocking stat that should forever discourage you from signing up for a "Buy Now, Pay Later" plan. The most disturbing statistic in the report revealed that a whopping two-thirds of people who used BNPL were still paying for their items even after they no longer owned them.
In other words, if you sign up for a "Buy Now, Pay Later" plan, the odds are that you will be spending future income on something that you are not even using any more. You'll be restricting your future spending options by committing money you haven't even made yet for something you won't use long enough to pay off.
What should you do instead?
Instead of signing up for a BNPL plan, you should ideally consider saving up and paying cash for any purchase you want to make.
This enables you to avoid paying interest charges and to make sure you aren't tying up income you'll earn later on in life. You also won't get stuck paying for items for so long that the purchase is nothing but a distant memory that haunts you with continued payments.
If you cannot pay cash for everything you buy, you may be better off financing the items with a low interest personal loan that has a set payoff time and schedule. That way, you'll know exactly when you will be debt free and exactly how much the item will cost over time. This enables you to better assess whether you'll use the item long enough to pay it off before you tire of it -- and it helps you make a better assessment of whether it is really worth what you're paying after interest is factored in.
Whatever approach you take, it's clear that "Buy Now, Pay Later" plans probably aren't the right one, so aim to steer clear of them whenever you can.
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