Thanks for reading Finessing Finance. As always, your support does not go unrecognized and my journey to continually help people with free, accessible content.
Short-Term Management for Long-Term Gains
If you asked me two years ago what I thought about the Buy Now, Pay Later model, I would have told you to steer clear. I was under the firm belief that Dave Ramsey’s idea that everything should be bought in cash is the best way to approach your major purchases. While this idea can hold true, there can be situations where it’s beneficial to take advantage of a Buy Now, Pay Later (BNPL) purchase.
The history of the Buy Now, Pay Later is simply an installment plan for a large purchase. BNPL companies like Affirm and Klarna have popped up as recognizable and safe household names to pay your installments to. Going through a third party for installment payments creates flexible spending plans and safety that could sometimes not be provided by the main lender.
Pay Later? When?
I’m writing this article as I continue financing a honeymoon gift that I purchased for my wife. I don’t want to go into the details but it’s something she’s always wanted and nothing would make me happier than to see her with the one thing she’s been asking for years.
Here’s how the major purchase went down:
Knowing that I could afford the purchase in cash upfront, I went through with an installment plan with Affirm. Affirm offered several options (some with interest) and I weighed my choices against each other. Ultimately, I chose a plan with no interest and the lowest amount of monthly payments for this major purchase. It’s a six-month timeline but it won’t break the bank immediately and I can put my money to work in the meantime.
Overall, I’m happy with the idea that I’m financing a purchase like this (and not paying interest).
Conditions for BNPL
BNPL options can be tricky. I’d only recommend considering it an option if you meet a certain and extensive criteria:
Stable income is a MUST
If your monthly income is flexible, I’d recommend staying away from BNPL as steady payments can throw off your bills for months
Consider your current debt
Are you in a place to take on debt? If not, maybe it’s good to steer clear of BNPL. After making my first purchase on my wife’s gift, I can clearly see how it is a slippery slope to financing half your house.
Look for plans with no interest
If you’re continuing to move forward with the above, consider the payment plans presented and ask yourself if you can afford the plan with no interest. At the end of the day, this Substack is all about money in versus money out.
Ensure auto pay is enabled and be sure to never miss a payment
I’ve learned a lot through my first major purchase on a BNPL model. I’m considering a few major household necessities to fund this way that would increase my quality of life. But first, I’d like to pay off the debt with interest before I dip into this further.
What are your thoughts on BNPLs? Here’s a stat to leave you with:
33% of buy now, pay later users have made a late payment or incurred a late fee. 47% of BNPL users say they are at least somewhat likely to make a late payment within the next year. - Motley Fool
Have a great week,
Jordan