Using Pay as You Go Services? Consider These Tips if So

The option to pay for purchases over time rather than in full has existed for a long time. Years ago, there were layaway plans. And for decades, consumers have used credit cards to buy things they couldn't afford to pay for outright.

In recent years, point-of-sale installment loans have grown more popular. These agreements allow consumers to pay for purchases in installments rather than at once. 

"Buy now, pay later" plans, or BNPL plans, are a common type of installment agreement that consumers are increasingly adopting. As of September 2022, as many as 100 million Americans had used a BNPL plan in the past year at least once, according to TransUnion. 

But while these point-of-sale installment loans might seem convenient, using one can easily backfire on you. It's important to be careful when signing up for one. Here are some tips for signing up for and managing point-of-sale loans, or BNPL plans.

1. Read the fine print

The upside of BNPL plans is that you can usually avoid interest and fees on your purchases if you stick to your installment agreement. But if you don't, your costs could rise. So before you sign one of these agreements, make sure you really understand what you're getting into and when your payments are due.

2. Reserve these loans for emergency purchases

If you have a big purchase you can't put off, such as having to replace an essential home appliance that recently broke, then you need to finance it if you can't afford to pay for it in full. If the cost isn't large enough to warrant a personal loan (which usually come with borrowing minimums), then you may want to sign up for a BNPL plan. 

But it's generally not a good idea to sign up for a point-of-sale installment loan for an item that isn't essential. So if you want a new TV or laptop but you don't have the money in your savings account to cover its cost in full, move on. You can push yourself to cut back on spending and save for that item, and then buy it a few months later without having to finance it.

3. Make room in your budget for your new loan payments

BNPL plans commonly give you just a few months' time to pay off your purchases. And you don't want to fall behind on your payments, because if you do, your credit score might take a huge hit.

Once you sign up for a BNPL plan or point-of-sale installment loan, immediately comb through your checking account records and credit card statements to get a sense of your regular spending, and then find ways to cut back enough to cover your new loan payments. You may need to curb your spending to a large degree to avoid falling behind. If you don't think you can do that, pick up a side hustle to drum up the cash to make your payments.

Point-of-sale installment loans might seem like a good option to fall back on when you want to make a purchase and money is tight. But be careful when signing up for these loans. And if you're going to do so, read the details carefully and do your best to keep up with your payment schedule.