Financial Planning
October 12, 2022

Buy Now, Pay Later is Still Debt!

Don’t believe the marketing hype; owing money is debt
Stewart Willis

Social media influencers have been showing off expensive purchases they’ve made using a service called Buy Now, Pay Later, or BNPL. A twist on old-school layaway plans, BNPL allows you to pay for purchases in a store or online over a set number of installments. The difference is, unlike layaway, you don’t have to wait until you make the final payment to get what you’ve bought. 

Most BNPL plans allow you to borrow money interest-free as long as you make all of the payments on time. If you miss a payment, you may be charged high interest rates on what you borrowed. Depending on the lender, your late payments may also be reported to credit bureaus, which can negatively impact your credit score.

Social media influencers have been touting the benefits of this service by showing off expensive items they bought using these 0% loans. But there’s a key problem with a lot of the messaging around the practice. Many of those influencers tell their followers that BNPL is not debt. Even an executive at one of the two largest BNPL companies told a newspaper that it is a “budgeting tool” that allows you to get the advantages of credit “without having to go into debt.”

It probably won’t surprise you that I disagree with that statement! Any time you borrow money to buy something, you are going into debt. If you get a 0% loan via a store credit card to buy an appliance, that’s debt. There is nothing about BNPL 0% loans that magically bypass the definition of debt; you still owe money for a good or service you obtained, and at some point, you will have to pay the debt off.

That doesn’t mean taking on debt via 0% loans is a universally bad idea. In fact, used properly, debt can even enhance your financial position. At Asset Preservation Wealth & Tax, we often have clients who use 0% loans to spread out payments for big purchases. It prevents them from having to withdraw large amounts of money at one time which would expose them to unnecessary taxation.

However, BNPL plans aren’t generally set up to enhance your financial picture. Instead, purchasing via these loans can make it easy to overspend. If you buy more than you can afford to pay off, you can find yourself trapped and trying to make payments on loans that now carry very high interest rates. Missed payments reported to credit bureaus can make it more difficult to get favorable rates on loans to buy cars, homes and other large items. 

As with any financial product, it’s important you don’t automatically believe the marketing hype. Just because someone tells you BNPL will let you buy whatever you want debt-free doesn’t make it true.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

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