Buying something now and paying later is not a good move for your finances, especially for retail purchases. Let’s talk this through by understanding the other side of the equation.
Businesses are trying to survive financially just like you
Businesses don’t have to care about your financial future. They care about theirs. They want to first survive and then to thrive, just like you. They’ll do it at your expense if they need to.
They are giving you deferred payments or no interest for a period of time not to be nice guys to you, but to make it easier for them to get a sale.
Retailers are pushing Buy now Pay later for e-commerce payments
Many retailers are now offering buy now pay later (“BNPL”) for internet purchases. This is the latest trend and is up significantly from 2020 to 2021 so far. Firms such as Macy’s, the Gap and Neiman Marcus all have buy now pay later options. Many others are now offering this as well.
This is a marketing tactic to increase sales on their end. Buy now pay later often means you can’t afford it now, so instead you’ll buy it because they want the sale and you are betting you’ll be able to afford it tomorrow when the payments are due.
Why punish your future self? When you make this type of decision you are making it much more difficult on your future self so that your current self can do what is easier today.
These types of things almost always even out!
Easy now = Hard later
Hard now = Easy later
The problem with betting on the future is that your situation could be worse tomorrow, or other priorities may come up. Unfortunately, you already committed to paying for this item so now you have to pay the piper at the most inopportune time!
Financing is a Big Money Maker
For many companies, their finance business is a very large part of their revenue and profit. That’s why retailers give you deals for using their credit card. They know they’ll make that back and then some with late fees and interest for many of their customers.
The same applies for the “buy now – pay later deals.” If you fail to pay as agreed (you forget or are unable) you will likely incur late fees and interest, resulting in you paying much more for the item than the original purchase price. Once again, a good deal for them and a bad one for you!
Why add this level of risk and complexity? It would be easy and simple to just pay at the time you get the item and then you are done. If you can’t afford it then, don’t buy it!
One Strategy to combat the Impulse to Buy
Often the BNPL option convinces you to buy the item as an impulse buy. For example, you might not buy that $250 item today but when it is presented to you in five payments of $50 each it doesn’t sound too bad. It’s often just enough to get you to purchase.
A strategy to combat the impulse purchase is to follow the “impulse purchase waiting rule.” That rule is to put the item down on a list that you want to buy now, and then in three days go back to the list and decide if you are going to buy it. Often the impulse to buy will be gone and you will make a more rational decision on whether to make the purchase. Remember, companies are using strategies against you to get you to buy. They don’t care about what financial harm it causes you.
- Companies offer Buy Now Pay Later (BNPL) options because it gets them more sales. They don’t care what it does to you.
- What is EASY for you now (just buying it) will be HARD for you later when you have to pony up the money. If you really want the item then do the hard work up front and save the money and then make the purchase.
- Not only do companies get to make a sale but they can make even more when you forget and miss a payment and then they can charge you fees and interest
- Use the “Impulse Waiting Rule” of putting the item you want to buy on a list and then check the list in three days to see if you really want the item or not. This will defeat the impulse buy strategy used by the seller and allow you to think more rationally if you really need the item or not.