Buy Now Pay Later Loans – What Are They?
When you need credit, you probably think of the standard and routine lines of credit. Credit cards, debit cards, or loans for bigger purchases, are all standard. But a new hybrid of these kinds of lending outlets is becoming more and more popular – buy now pay later (BNPL) loans.
What is a BNPL Loan?
You could certainly put your next purchase on a credit card. Then, you’ll have a standard monthly payment, small enough to afford, but also small enough to assure that you will be paying the loan off for years –along with a significantly high interest rate.
But you can now opt for a BNPL loan. This is simply a loan that splits up the amount that you have charged, over a few even payments, usually at a low interest rate, or with no interest at all. The payments are higher, but you’ll pay the loan off in a shorter amount of time and save a lot of money in interest.
Some BNPL loans even will waive late payments, or at least won’t charge you an extra amount for making a late payment.
Market is Growing – But Be Wary
According to one report, the BNPL industry is expected to expand by 10-15 times what it is now by 2025.
But when it comes to your credit, these loans are kind of like the Wild West. There is no one uniform policy. Many BNPL lenders report loans to the credit reporting agencies, while others do not. For those that do, the negative mark on your credit will remain there for the standard 7 years.
In some cases, these loans can affect your credit, even if you’re paying them back and if you pay on time.
They can easily increase your debt to income ratio. Additionally, you are applying for credit when you get these loans, and these credit pulls can also negatively impact your credit score.
Loans Shorten Credit Account Time Periods
Your credit can also be hurt because these are short term loans. This may seem like a benefit—after all, you’re paying a loan off faster. But in fact, credit goes up when you have longer accounts, with longer credit histories (which is why closing accounts can sometimes hurt your credit).
Paying off a purchase in full, and then a few months later opening a brand new BNPL loan for another purchase, can actually hurt your score more than if you just had a single credit card, paid it off, charged it again, paid that off, and so on.
About 15% of your credit score is based on the average length of your credit accounts, which will be lowered by the constant opening and paying off (closing) of BNPL loans.
Bankruptcy can help wipe out BNPL, and other kinds of unsecured loans. Call the West Palm Beach bankruptcy lawyers at Kelley, Fulton & Kaplan at 561-264-6850 for help with your financial situation today.