There are many shops and online stores that allow customers to buy items and then make repayments in instalments. These are a form of borrowing and will normally have charges associated with them. You can use these sorts of deals for everything from cars to windows and white goods to clothing. Many people use them and there are advantages and disadvantages of doing it.
Advantages of buy now pay later
Being able to have something now but not pay for it immediately can seem really great. It means that you can get hold of something without having to save up for it. This can be great for anything that you really want and particularly good for items, such as replacing broken white goods or to pay for a replacement car that you need. If you need something in an emergency and cannot afford to pay for it, then it can be a great way to afford it. In fact it can be a great way to afford anything.
It can help to spread the cost of the item. Some people may save up over a series of months or years to be able to afford the items that they want. With buy now; pay later you do not have to do this as you can get the item and then spread the payments in the same way that you would if you are saving. It just means that you have the item right away rather than having to wait for it.
Disadvantages of buy now pay later
There are quite a few possible disadvantages of buy now; pay later.
– Impulse buy
– Ability to make repayments
– Term of the loan
The cost of buy now, pay later can be high. Even if the items are advertised as being interest free or there is no cost of the borrowing, it will be incorporated somewhere. This means that the items themselves could be dearer or you could be paying to borrow the money or possibly both. So make sure that when you see a deal like this, that you compare the cost with other similar items form other shops to see how it compares. When you are comparing the cost, do not look at the cost on the shelf but look at the cost once the borrowing costs have been added in.
When you see a deal like being able to buy something now and pay for it later, it can be tempting to make an impulse buy. It makes it sound like the item is easy to afford and so you will be able to easily pay for it in the future. This could lead you to buying things which you do not really need or want because they sound so good. It could also mean that you buy things that you cannot really afford.
You will need to make regular payments for the items until they are all paid for. This could be over a year or several years depending on the agreement that you have. It means that you will have to commit to making a payment each month for a period of time and therefore you will have less money to spend each month until you have repaid what you owe. You will need to be confident that you can afford these repayments and that you will continue to be able to afford them until the loan ends.
It is therefore important to be aware of how long you will have to make repayments for. It could be for years and it can be hard to predict what your financial circumstances might be like in a few years’ time. Therefore you need to think really hard about whether you think it is a sensible idea to buy this product as you will be committing to paying for it for a long time into the future.
Comparing the two
Therefore you need to think about the advantages and disadvantages and think which applies to you the best. If you need to replace something in an emergency, then being able to buy it now and pay back in instalments can be really useful for anyone who does not have any savings and therefore cannot afford to buy the item right away. However, if you are looking at buying a luxury item, then buying it and paying later can mean that you are paying more than you need to. If you save up then you could end up paying significantly less money. Therefore it could be well worth comparing some prices to see whether you can buy the item cheaper if you save up.
Saving up money also has a big advantage over repaying a loan with regards to the flexibility. If you are savings up and need some money then you can use those savings or save less that particular month. However, if you buy the item and are tied into monthly repayments then you have no option but to make that repayment. If you cannot afford it and miss a repayment you will have to pay a late repayment fee and this will mean that you will end up paying even more for the loan.
A deal on an item can tempt us to buy something that we do not really want. This can be interest free credit, paying back in instalments or something else. It can seem like it is a really great deal that we cannot miss and so we are tempted to buy something that we really do not need. Therefore this is something that it is worth thinking about. Before you buy anything, consider whether it is something that you really want or whether it is something that you are just buying because it seems that you like it. A good rule of thumb is to not buy anything right away but go away and consider whether you really want it and compare prices before you buy.