Buy now, pay later, a debt trap?
Buy something now and pay in 30 days – sounds great, doesn't it? Buy now, Pay later (or BNPL for short) promises exactly that and is offered by many payment service providers such as PayPal or Klarna. Even if postponing a payment sounds positive at first glance, BNPL does not only have good sides.
Why can Buy now, Pay later be problematic?
What sounds great at first also has its downsides. Paying later is particularly tempting when there is not much money available. However, this offer can quickly cause you to lose track of your own finances. With frequent use, it quickly becomes unclear how much money is left in the account for delayed payments.
In addition, when we buy something, we usually feel the "reward" of having something new, but at the same time the "pain" of having to give money away. This is most noticeable when paying in cash. The card payment alone makes this process less present. BNPL does not even change a figure on the account balance for a while. As a result, the link between "reward" and "pain" is hardly noticeable with BNPL. This can lead to an increase in impulse purchases.
Buy now, pay later also includes instalment purchases. Interest may be charged here, which means that the total amount is higher in the end than with a direct purchase.
Not a new phenomenon
The basic idea of BNPL has been around for some time. Various retail chains have been enticing customers with "0% financing" for years. Here, too, the purchase is "decoupled" from the payment, but is particularly attractive for larger purchases. What is new is that subsequent payment is available for almost every purchase via providers such as Klarna or PayPal. You must observe a separate deadline for each instalment payment. Not falling behind here is a lot of work: You must always keep a close eye on your account balance to avoid accidentally cancelling a direct debit and incurring additional costs.
What if I am already in debt?
If you have debts with a BNPL provider, you should prioritise first. Even if there are debts with Klarna or PayPal, the following payments should generally be paid first:
- Rent, electricity and heating costs
- Parking tickets or fines
- Debts to the health insurance company
When it comes to arranging repayments, our on-site debt counselling services can help you arrange repayments. Do you only have a few debts and are you in a position to make a payment proposal on your own? Then our sample letter generator will help you This makes it easy for you to write a good cover letter for a payment offer.
When can I use BNPL?
In addition to the dangers, Buy now, Pay later also offers an opportunity. If you don't have much money on-hand, you can still make necessary but expensive purchases without immediately overdrawing your account. However, you should be aware of how much money you will be missing in the coming months. And you should know what other payments (including any one-off payments) are still due during this period. It's worth asking yourself again:
- Do I really need this purchase, or are there other options?
- Can I perhaps get the product second-hand?
- Is it enough to borrow the product from a friend? Or can I rent it?
Our tip:
Use a budget plan and do the maths there: Can you pay the amount in the future without missing money elsewhere? If you buy something and pay for it later, enter it directly in the budget for that month, so you can keep track of how much money you actually have left! The consumer advice centre's Buy now, Pay later checklist can also help you.