This text discusses the risks and implications of using “Buy Now, Pay Later” (BNPL) services. Here’s a breakdown of the key points:
Risks and Fees Associated with BNPL:
missed Payment Fees: BNPL providers charge $8 for each missed payment.
Overdraft Fees: If your bank account lacks sufficient funds when a BNPL provider attempts a withdrawal, you could incur an overdraft fee. The average overdraft fee is $27 per transaction.
Expert Advice on Using BNPL:
Read the Fine Print: Personal finance experts advise thoroughly reading the terms and conditions of BNPL plans to understand the total amount owed and payment intervals.
Self-Assessment: Consumers shoudl ask themselves if they can afford the payments after covering other monthly expenses to avoid overextending themselves and missing payments.
Avoid “Loan Stacking”: Debt counselors warn against using multiple BNPL loans from different companies together, as this can lead to missed payments and accumulated fees.
Smart Usage: The recommended approach is to use BNPL for one purchase at a time and only for items you can genuinely afford.
Future of BNPL and credit Reporting:
FICO’s New Scoring Model: FICO is developing a new scoring model that may incorporate BNPL data.
Credit Bureau Involvement: If FICO’s model proves effective, major credit bureaus (equifax, Experian, TransUnion) may increase their reporting of BNPL data.
Current Reporting: Affirm and klarna are already providing payment histories to some credit bureaus, but this data isn’t yet used to generate credit scores.Though,lenders may consider this data directly.
Experian’s Collaboration: Experian is actively working with BNPL providers to expand the reporting of payment data.
Consumer Advocate Concerns: Consumer advocates emphasize that as BNPL becomes integrated into credit reporting, it should be treated with the same seriousness as other credit products.
Impact on Credit Scores: Payment history is the most significant factor in credit scores (35%). Timely BNPL payments could improve credit, while missed payments could negatively impact it.
Accountability: the integration of BNPL into credit reporting means there’s “no hiding from accountability.” Consumers need to be aware that late payments can hurt their credit.
Goal of Reporting: The hope is that reporting BNPL to credit bureaus will help consumers access credit they can afford and prevent them from becoming overextended.
Additional Resources:
The text also includes links to further information on BNPL from Checkbook.org, including an article titled “Buy Now, Pay Later, Frequently enough a Debt Trap” and a podcast episode on the pros and cons of BNPL.
