Buy Now – Pay Later. If you’re careful, it can actually be a GOOD idea.
The concept of breaking up payments into smaller amounts over time isn’t new. Starting in England in the 1100s, mortgages were invented to allow the transfer of property when the buyers didn’t have the full amount of cash available at the time. The original property owner then had a claim on the property until the full amount owed was paid back.
Of course, the concept of paying over time has proliferated since then and more and more things are available with payment plans – usually monthly. It is not unusual for someone to have a mortgage payment, car payment, cell phone payment (essentially a lease on their cell phone), insurance payment, in addition to the things that are normally paid monthly like utilities, healthcare, and (these days) multiple streaming service payments (I could go on and on). Some people even rent their furniture, and I’ve seen many people pay for cruises or vacations through those “easy payment plans”. Of course, telemarketers are famous for breaking up the price of their products into payments and it is where most of us know the phrase “X easy payments”.
The danger is easy to see but hard to avoid. You don’t have the money now but want some item or experience and convince yourself that you’ve have the money in the future to pay for it later.
We tend to forget or ignore two important points.
First, as you add more and more monthly payments, it digs into your monthly salary or other revenue, sometimes to the point where you are paying out in monthly payments more than you are taking in. They do make it easy to buy things by spreading out the payments – so easy that we are all doing it and we tend to lose sight of the total monthly cost or whether or not we can afford it.
Second, there is usually a cost to those “easy payments”, a financing cost that can be minimal or pretty expensive, depending on what you are buying. When you lease a car, the cost of the lease is spelled out by law but in other cases you need to do some math to figure it out, and most people don’t want to do that. For example, renting an HP Pavillion 15.6” 5G 4600H Gaming Laptop is $29.99/week or $2,724.07 over the length of the contract at Rent-A-Center. You can buy it outright from Rent-A-Center for $1,210.70 (or even less on other sites).
So, those are the dangers but why did we say that these pay over time programs can be GOOD for you?
There have been two recent trends.
1. More and more companies are offering “pay over time” options.
2. Many of those companies are now offering no interest payments. So, as long as you are careful to only buy what you can afford, it actually makes more sense to pay over time as you hold onto your money longer. Assuming you have that money invested, you can actually save money by paying over time.
This trend was highlighted when I recently booked a murder mystery show for $69 and was surprised to see a “pay over time” option offered by a company called Sezzle. They were offering the opportunity to make “4 easy payments” of $17.49. I was surprised since I hadn’t seen such low value products/services with pay over time options. I was also surprised that when I did the math 4X$17.49 = $69 – no interest. The company is picking up the cost of financing.
So, take advantage of these pay over time programs when they make sense, but make sure you be careful to only buy what you can afford.