In the past few years, there has been an explosion of alternative payment options. Installment payments services like Afterpay, Klarna and others have proved especially popular – but what are the benefits and risks of choosing to “buy now, pay later” at checkout? Read on for a rundown of everything you need to know about installment payment services.
When you use an installment payment service to check out from a retailer, it’s kind of like checking out with a credit card – you don’t pay any money up front, but you do owe money later on. While every “buy now, pay later” payment service is different, most require that you make your repayments in specific installments, on specific dates. For example, you might need to pay back one-quarter of the original checkout cost every two weeks.
Installment payment services are now available through most major online retailers. In addition, some installment payment providers are offering point-of-sales options to in-person shoppers. However, point-of-sales installment loans may be more difficult to qualify for, especially if your credit score is on the lower side. Watch out for high interest rates on in-store installment payment options, which may be as high or higher than what you’d pay with a traditional credit card.
The major benefit of some installment payments services is that they allow you to make a purchase on credit, without the risk of high-interest credit card debt. Afterpay, for example, doesn’t charge interest and won’t affect your credit score – however you will need to pay a late fee if your installment payments aren’t made on time and in full. Every installment payment service has its own rules, so always read the fine print very carefully to understand exactly what impact using the service may have on your financial health.
As with credit cards, the biggest risk of “buy now, pay later” is that you will spend above your means. Installment payment services can be especially tempting, because 0% interest looks like a can’t-lose shopping scenario. Just remember that late fees on many services can be significant, and some “buy now, pay later” services do charge an interest rate similar to a credit card.
The most important tips for using installment payments services are – read the fine print closely to fully understand the terms and conditions of the service, and always aim to make payments on time and in full. Beyond that, it’s a smart idea to keep a payment calendar to ensure you’re staying on top of installment due dates. This is especially true if you’re using multiple installment payment services at the same time, which is generally not recommended as you risk losing track of how much you’re actually spending and when you need to pay it back.
Finally, depending on your credit history, you might consider making installment payments with a credit card. This can be a good way to earn points and rewards, as well as build your credit history, while taking advantage of the potentially lower interest with a pay-later option. Just be sure that you can pay off your credit card bills on time, so that you’re not racking up more unpaid debt, as you don’t want your “buy now, pay later” spending to indirectly contribute to a negative impact on your credit score.