Affirm, Afterpay, and Klarna are all examples of buy now pay later schemes that have become increasingly popular in recent years. But are they right for you? This article discusses whether paying in installments is better than paying in full when you’re shopping online.
Companies such as Affirm, Afterpay, and Klarna are just some of the services that offer point-of-sale lending, also known as buy now pay later. According to Credit Karma, more than 40% of Americans have used a buy now pay later plan when shopping online.
When you shop with a company that allows you to pay in installments, you first get your item and then pay for it over a specified period. These services are widely available, with hundreds of participating retailers currently allowing them as payment methods.
But just like in the case of any other financial product, it’s important to find out whether point-of-sale lending is right for you.
How are services such as Klarna different from credit cards?
Point-of-sale lending is only possible through retailers that are enrolled in the scheme. On the other hand, you can use credit cards to buy virtually anything at any retailer. Moreover, with services such as Klarna and AfterPay, the amount you are borrowing is not based on your credit limit but on your purchase with point-of-sale lending instead.
The loan duration varies according to the service you use, and it can range between 30 days to a couple of years. When you use this type of service, you make monthly payments until the entire amount is paid off, or you can also choose to pay off your loan early.
Pros of paying in installments
There are multiple pros of being in installments, with the most tempting one being the ability to make a large purchase without using a credit card.
You also know exactly how long you’re going to make payments, and you don’t need a credit history to pain assignments. Point-of-sale lending is typically an attractive option when you’re buying items such as electronics or furniture.
Cons of paying in installments
As with any financial product, there are also several cons of choosing to pay in installments vs. paying in full. Interest rates can be as high as 30%, and you will have to work with their retailer if you want to return your purchase.
These services may make it more tempting to overspend, and you need to consider the fact that your loan may have accompanying fees, so it’s important always to read the fine print carefully.
Finally, installment programs might hurt your credit score if you don’t keep up with your repayments, but they don’t positively impact if you pay them off according to the terms.
Just like in the case of credit cards, services such as Affirm, Afterpay, and Klarna can be helpful if used correctly. Credit cards can help you build up your credit, and some of them even offer you the possibility to earn rewards, but paying in installments works for those with a less than stellar credit history.
If you can make your monthly payments without going into debt, payment plans can be a convenient option. Otherwise, it’s best to stick to debit cards and cash.