Allegiance Credit Union Blog

Buy Now Pay Later: The True Cost of Deferred Payments

Written by Allegiance Credit Union | Apr 30, 2024 3:56:00 PM

Buy now pay later programs sometimes appear to be a perfect option to fund a vacation, shop for a new wardrobe, or pamper yourself at a high-end spa. But when something seems too good to be true, it’s just a matter of waiting for the other shoe to drop. And drop it will, once a repayment schedule arrives.


It’s no secret that buy now pay later plans have been trending in recent years. Once reserved for beauty and cosmetics, more than 90 million cash-strapped people in the U.S. have reportedly agreed to a buy now pay later schedule. That number is expected to exceed 100 million by the end of 2026. Although working families are usually pleased with the results in the short term, many regret deferred payments later.

What is Buy Now, Pay Later?

Consumers may discover that buy now pay later programs offer distinctly different terms and conditions. If there’s any consistency, it involves fixed monthly repayments and little-to-no additional interest. This is not to say companies don’t sneak in hidden fees.

In terms of funding a vacation or other leisure expenses, buy now pay later programs usually require a substantial upfront payment. The amount can be as high as 25 percent in some cases. Needless to say, handing over a substantial lump sum down payment reduces the financial convenience of deferring the cost. If you were to apply for a home equity line of credit or personal loan to fund your vacation, the upfront costs would be nominal, or nonexistent.

When making an informed decision about which borrowing option to use for travel or leisure expenses, it’s always a good idea to know the pros and cons. Like other options, buy now pay later plans have their fair share of both.

Buy Now Pay Later Pros

The popularity of buy now pay later is largely driven by how easy it is to enroll in these programs. Companies are more than willing to allow consumers to pay over relatively short periods of time. They understand their competitors will likely offer deferred payments to increase revenue and buoy brand loyalty. These rank among the common reasons why people gravitate to deferred payment purchases.

  • Convenience: Sellers of goods and services ask little of consumers when signing them up. A steady paycheck and willingness to make the payments are relatively all companies ask of buyers.
  • Credit Score: Buy now pay later programs do not necessarily require a credit check. If they do peak into your credit history, it’s usually by making what is known as a “soft pull,” which does not significantly impact your three-digit score.
  • Interest Rates: While some companies offer zero-interest deferred payment programs, others offer a rate that falls lower than the average credit card account.

Corporations generally provide quick approvals, sometimes right at the point of sale. When booking airfare, hotels, or all-inclusive resort getaways, some companies allow you to sign up online. As convenient as buy now pay later purchases may sound, there are some negatives you should know.


Buy Now Pay Later Cons

One of the biggest concerns about deferred payment plans stems from the fact this industry is not adequately regulated. Unlike the local lenders that community members rely on for mortgages and auto loans, buy now pay later programs lack oversight. It’s always a buyer-beware situation because these programs have unexpected issues, such as the following.

  • Interest: Not every seller forgoes charging interest on buy now pay later agreements. Consumers are sometimes stunned by how quickly deferred interest swells their balance.
  • Fes and Charges: Hidden fees and late charges can be excessively expensive. The worst part is that consumers forget to check the fine print when signing up.
  • Overspending: Ethical lenders work with members to find a borrowing option suitable for monthly budgets. Corporations doling out deferred payment options, not so much. Too many people discover they cannot afford the monthly bill after the fact.
  • Dispute Resolution: Returning a defective product or not being able to complete a leisure experience may have little bearing on the repayment terms. Even if you get your money back from an airline, resort, spa, or big box retailer, companies may still require you to pay the interest and fees.

Buy now pay later providers are not particularly interested in a consumer’s FICO scores when approving a plan. If you pay late on these short-term repayment plans, your credit score is likely to take a big hit.

Buy Now Pay Later Loan Alternatives Exist

If buy now pay later doesn’t sound like the right opportunity for you to fund a retail purchase, vacation, weekend getaway, or another expense, there are a wide variety of borrowing options for qualified people. These are popular ways working families secure the money needed for memorable vacations and other quality of life enjoyments.

Personal Loan

Working with an experienced local lender to secure a personal loan ranks among the most cost-effective and straightforward ways to get a cash lump sum. These unsecured loans are employed for wide-reaching reasons, including travel, home improvements, and wedding expenses. Qualified borrowers can take advantage of low-interest rates, minimal fees, and flexible repayment terms. As a fixed-rate loan, the monthly installments never change. 

HELOC

A home equity line of credit (HELOC) uses the difference between the mortgage balance and the market value of a property as collateral. As a secured loan, borrowers enjoy low interest rates and favorable repayment schedules. However, homeowners sometimes feel uneasy about taking out what some view as a second mortgage.

Credit Card

There’s no denying the fact that swiping or tapping plastic is painlessly easy. In terms of savvy financial budgeting, credit card interest rates tend to run much higher than HELOCs and personal loans. Before straining a credit card’s limit — and impacting your FICO score — it may be prudent to consider the long-term ramifications.

Fast Cash

Fast Cash loans can be a go-to resource when people are required to make last-minute business trips or have a family emergency that requires unexpected travel. These borrowing options can be secured by working with an experienced local lender and are primarily based on the standing of your credit union membership and deposit history. Qualified borrowers receive prompt approval, and the money can be deposited in minutes once the application has been processed.

Those who need to catch flights or hop on a train can expect an almost immediate answer, allowing them to travel on the same day in many cases. It’s essential to keep in mind that Fast Cash loans typically have short repayment windows. They are best suited for people who are low on cash and between paychecks.

Allegiance Has Buy Now, Pay Later Alternatives to Help

If you are planning a dream vacation or major purchase, Allegiance Credit Union offers a variety of programs to help reduce costs and maximize your buying power. We offer buy now pay later alternatives, including fast cash loans, credit cards, HELOCs, and low-interest personal loans for qualified borrowers. Contact us today to discuss which option is best for your adventure and budget.

To dive deeper into buy now pay later alternatives, explore our "Vacation Payment Plans Unlocked: Plan Your Getaway Without Breaking the Bank" Guide.