By Charlestien Harris

Since we are celebrating the month of April as National Financial Literacy Month, I decided to talk about a topic that is picking up momentum in the consumer financial arena. The financial model of “Buy Now and Pay Later” is taking the financial world by storm and enticing many to stray away from the tradition of saving for a major purchase. This type of payment method is unlike using a credit card because the monthly payment doesn’t “hang over” the consumer’s head. Instead, it is broken up into smaller payments, usually four, over the course of a few months.

The most appealing part about these types of payment plans is that they don’t necessarily require a hard credit pull, nor do they report missed payment information to credit bureaus like personal loans would. In addition to those favorable facts, they also don’t charge late fees like credit cards and loans often do. Usually, if someone misses a payment, they can’t finance another purchase through the app until it’s paid off in its entirety. 

Here are a few tips to help you navigate this “new” space in consumer lending.

1. Be sure to review the terms and conditions.
   As a consumer, you need to be more vigilant than ever when reviewing the terms and conditions of the contract before you sign on the dotted line. If you don’t understand the language in the disclosures or don’t read them at all, you could be stuck with astronomical interest rates and terms and conditions that you can’t possibly meet within the time frame given to complete your payment. These products can end up doing a lot more harm than good if not paid off in full or on time, and could also create unintended consequences such as increased debt.
   
   
2. Be aware that there may be penalties, additional fees, and interest.
   If you should miss a buy now/pay later payment, you may be charged late fees or interest on your unpaid balance. Depending on the amount charged by the lender as well as how these fees are structured, they can add up quickly. If something happens and you stop making payments altogether, buy now/pay later services can also turn your account over to a collection agency. Besides adding more fees and interest to your balance during this timeframe, your credit score could also be put in danger.
   
   
3. Be sure to check your established budget plan.
   It can be quite easy to overextend your finances if you don’t follow the budget you created for your finances. Overextending your budget can be one of the biggest dangers of using buy now/pay later services because you can often be looking at the moment and not the total picture at the time. You may be looking at the cost of each payment, rather than the total cost of the item. This can especially happen when you make several purchases with buy now/pay later arrangements; the bills can add up and it becomes a struggle to manage the payments.
   
   
4. Be sure to check how your payments are being collected.
   If you are responsible for making the payment yourself, be sure you make those payments when you are supposed to. If you have automatic payments, you must make sure that the money is in your account. If your payment overdraws your bank account, you will incur additional fees from your bank. Overdraft fees can be costly and dig a deeper debt hole for you to overcome.
   
   
5. Be sure to consider the best option that will suit your financial needs.
   Whether or not you should use buy now/pay later depends on your personal financial situation and responsibility. To responsibly use buy now/pay later services, you should be prepared to:
   • Make all payments on time to avoid fees.
   • Keep enough funds in your bank account for automatic payments to avoid overdraft payments.
   • Evaluate the full cost of purchases to avoid overextending.

If this sounds like it may be difficult for you, consider using another financing alternative that could fit your financial situation better. Choosing financing options can affect your overall financial picture, so be an informed consumer when it comes to making those choices.

Like many other financing options, buy now/pay later has its advantages and disadvantages. Your personal financial situation will have a lot to do with whether it’s a good or bad idea for you. There may be alternative financing options that make more sense for you such as using a credit card, applying for a personal loan, or using personal lines of credit.

Whether you choose to use buy now/pay later or another method of payment for your purchases, learn to be an informed consumer by increasing your financial literacy when it comes to knowledge about different financial products available. You can always count on Southern Bancorp to provide you with resources to keep you informed about financial topics that may interest you by visiting www.banksouthern.com/financial-education.

For more information on this and other financial topics, visit www.banksouthern.com/blog, email me at Charlestien.Harris@testbanksouthern.aceone.io, or call me at 662-624-5776.  

Until next week – stay financially fit!