Be Careful Of Buy Now Pay Later Loans

When people think about debt, and borrowing money for regular daily household items, they usually think of credit cards. And while credit cards are a large aspect of consumer borrowing, and while they are a leading cause of driving people into bankruptcy, there is a new player in the consumer credit game: Buy now pay later (BNPL) loans.

Standard Credit Cards

With a standard credit card, you borrow money, and your payments are extended almost indefinitely; so long as you make the minimum payment, you will continue to pay off the debt. Because the payments are set low, and because the interest on many credit cards is so high, even a moderate consumer purchase on a credit card can take years to pay off.

The BNPL Loan

But the BNPL loan is a bit different. BNPL payments are higher than the standard credit card payment, which may be a drawback. But with smaller payments come shorter payoff periods, so for people who really can afford larger payments, BNPL loans can limit the amount of interest you pay, and the length of time you make payments. And BNPL loans do tend to have lower interest rates than standard credit cards.

Be Wary of Drawbacks

But BNPL loans do come with some danger. As they aren’t traditional credit cards, a lot of government protections and regulations that apply to credit cards, may not apply to BNPL loans. That includes disclosures of credit terms and interest rates, which may be harder to figure out than with credit cards.

Credit Problems

They also may have a bad effect on your credit. Like any type of loan, they do increase your debt to credit ratio, But there is another hidden detriment to your credit, which sounds like a benefit: the quickness with which they can be paid off.

Of course, there is nothing bad about paying off a debt quickly. But credit can be negatively affected when you have short credit histories, and a lot of credit inquiries and accounts,

So, if you take a BNPL loan, pay it off in 2 months, get another one, pay it off in 3 months and then another one and pay it off in 4 months, it may seem like this is all good for your credit. But it can end up hurting your credit because there is no one account that you have had for a long time, and there are constantly new accounts being opened and closed.

Abuse and Bankruptcy

Like any other debt, BNPL loans are easily abused, and a consumer can end up with higher and more payments than can be paid back. Many BNPL loans can be taken out with the click of a button online, allowing instant purchases with relatively little money down at first.

But regardless of how they were incurred, BNPl loans can be discharged in bankruptcy, like most other debts.

Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 today if you have gotten into financial problems with any kind of loan or credit account.

Sources:

consumerfinance.gov/ask-cfpb/what-is-a-buy-now-pay-later-bnpl-loan-en-2119/

nerdwallet.com/article/loans/personal-loans/buy-now-pay-later