Buy Now and Pay Later: How To Make it Work Without Paying Interest

Photo by Alexander Schimmeck

Buy now and pay later apps are becoming more and more popular. You will often see them on the checkout page of certain websites advertising ways to pay your cart total in installments rather than paying it all at one time. They are often interest-free, but sometimes there is a catch while other times there is not. Learn more about how these “buy now, pay later” apps work and how you can use them to make payments in installments.

How Does Buy Now, Pay Later Work?

These apps or programs allow you to make purchases online and pay the totals over time, such as in weekly or monthly installments.

With buy now, pay later, you are taking on a debt that you already know you need to pay off within a few weeks or a few months. If you don’t make the payments on time, you might face higher interest rates or the inability to use the same apps or programs in the future.

This is a debt you can add to the beginning of your debt snowball strategy because it will most likely be a smaller amount that you can pay off over a few months. After paying it off, continue to work on your debt snowball with your next lowest-value debt.

Does Buy Now, Pay Later Have Interest?

This depends on the app or the program that the website you use offers. Some have interest right from the beginning no matter your purchase amount. Other apps offer interest-free periods, such as a month or two. If you want to avoid paying interest, you should pay the full amount during this period before the interest starts accruing.

Other apps are interest-free, but only if you follow the terms and conditions. If you miss a payment, you might face penalty fees and high interest. The best way to avoid this is to put your bills on autopay. This way you won’t forget to make the payment and you won’t be charged interest.

Does Buy Now, Pay Later Affect My Credit Score?

It can’t improve your credit score, but it can hurt it. Most of the apps don’t do a hard check into your credit to see if you qualify, so you won’t lose any points that way. They also don’t report on-time payments, so you won’t see your credit score improve either.

However, most of the apps will report late payments. If you start defaulting on payments, the credit bureaus will get an alert and you might see your score drop a few points. The program or app can also terminate your account and demand you make the payments in full or send the bill to collections. Filling your ChexSystems dispute is one of the first steps. It takes a really long time thereafter.

Should I Use Buy Now, Pay Later Apps?

This depends on your personal preference and your finances. If you’re trying to raise your credit score, using these apps won’t make a difference. Using buy now, pay later apps that charge interest will also make you pay more in the long run, which is not beneficial unless you need the product you are purchasing immediately. Another big danger of using buy now, pay later apps is buying something you can’t afford. This can cause or deepen a cycle of debt that can be tough to get out of.

It’s not all downsides, though. These apps might be a good idea to use if you need some extra time to pay off a necessary purchase, such as supplies for school or work or a bridesmaid dress or tux rental for an upcoming wedding. Just make sure to incorporate the future payments into your budget so you don’t accrue debt.


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About the Author: Brian Novak