9 Effective Strategies to Avoid Overspending with Buy Now, Pay Later (BNPL)

Buy now, pay later (BNPL) services can be a convenient way to make purchases, but they also come with the risk of overspending. At O1ne Mortgage, we understand the importance of managing your finances wisely. In this blog, we’ll explore nine practical strategies to help you avoid overspending with BNPL services. If you need any mortgage services, feel free to call us at 213-732-3074. We’re here to help!

Set a Clear Budget

Just like any other form of borrowing, it’s crucial not to spend more than you can afford. If you don’t already have a budget, create one based on your monthly income, expenses, and savings contributions. This will give you a clear idea of what you can allocate to BNPL purchases each month.

Be mindful of the tendency to overspend when using BNPL. Set a spending limit for your purchases to avoid exceeding your budget. BNPL plans typically require 25% of the purchase upfront and payments every two weeks until the purchase is paid off, often over six weeks. Remember to double the biweekly BNPL payment amount to get the monthly amount when factoring it into your budget calculations.

Compare BNPL with Other Payment Options

Before using BNPL for a purchase, consider your upcoming expenses and compare other payment options, such as a credit card or debit card. Using a debit card means you won’t have to keep track of payments and are limited to the amount in your checking account. A credit card may be a good option if you can pay off your purchase quickly and earn rewards at the same time.

If you decide to use BNPL, compare terms among providers. Additionally, check prices with different retailers to ensure you’re not overpaying simply because a store offers BNPL as a payment option. Factor in upcoming regular expenses to ensure you can afford BNPL payments on top of everything else you have to pay for.

Avoid Using BNPL for Impulse Spending

Studies show that many shoppers regret using BNPL for purchases because the items they bought were too expensive or they spent more than they could afford. Returns for items purchased with BNPL can be complicated and don’t eliminate your payment obligations right away.

Avoid buying on impulse. Instead of making a purchase on the spot, give yourself a cooling-off period to consider it. Delaying purchases gives you time to reflect on whether an item is something you need or an impulse buy you can live without.

If you’ve decided on a purchase, determine the best time to buy based on how it fits your budget and financial goals. Unsubscribe from marketing emails to reduce the chances of being tempted by sales offers and promotional discounts, which can increase your financial obligations.

Use BNPL Responsibly

Borrowing always comes with risks. Avoid borrowing more than you can afford, even if the monthly payments seem manageable. BNPL lenders may raise your borrowing limit based on your spending and repayment history, but that doesn’t mean you can afford to spend more.

Ensure you’re not borrowing for the wrong reasons, such as keeping up with trends. If BNPL is the only way you can afford an expensive item, reconsider. Overextending your budget can make it difficult to cover other expenses and financial obligations, potentially resulting in late fees and a lower credit score.

Monitor Your Spending

Keep track of your purchases and total balance, especially if you use more than one BNPL plan at a time. Have a clear idea of what you can afford to pay and ensure you don’t exceed that amount. Regularly review your outstanding plans and upcoming payments so you know where you stand before making a new purchase.

Overspending with BNPL products may be linked to a general increase in personal spending. Track your overall spending in addition to BNPL purchases for signs that you are regularly going over your monthly budget. For instance, you may be spending too much if you’re spending more than you earn, ignoring opportunities to save money, or justifying unnecessary purchases.

Monitor Payment Deadlines

Your BNPL provider may require automatic payments from your bank account. With BNPL payments on autopay, it’s easy to forget about due dates. If you don’t have enough money in your bank account to cover the payment, you could overdraw your account and trigger overdraft charges from your bank. Understand how your BNPL deadlines line up with your paydays and other bill due dates to ensure there’s enough money in your account to cover your BNPL plan payments and other expenses.

If your BNPL provider doesn’t require autopay, set reminders for upcoming payments so they don’t sneak up on you. Late fees vary by provider and aren’t always clearly disclosed. Depending on your BNPL provider, missing a payment may mean you’ll be charged interest, adding to your costs.

Limit the Number of BNPL Plans

Having multiple simultaneous BNPL plans, especially with multiple providers, can make it difficult to manage payments and keep track of your overall balance. It’s your responsibility to monitor the number of outstanding plans you have and avoid new borrowing if you’re spread too thin. Limit the number of BNPL plans you have at any time to prevent overspending.

Understand What You’re Getting Into with BNPL

Many BNPL plans offer a “pay in four” model, with four biweekly payments, but not all of them. More plans are extending payments for a longer period and charging interest. The payment options available depend on the purchase amount and the provider.

You may need to do some extra research to be clear on what you’re being charged; even the Consumer Financial Protection Bureau has found some BNPL disclosures lacking in clarity. Check the frequently asked questions and disclosures for the BNPL service you’re using to understand the terms and conditions before taking on a new plan.

Consider Using a Credit Card

Using a credit card has some benefits over BNPL. You’ll have one balance to repay for all your purchases and a grace period to avoid interest, provided you started the billing cycle with a zero balance. Some credit cards offer an installment plan feature for large purchases that allows you to pay in fixed monthly payments. Depending on your credit, you may qualify for a 0% introductory rate credit card, allowing interest-free purchases for a year or more, which could give you more time to pay off a purchase at a better rate.

Credit cards also have the benefit of helping build your credit, earning rewards on purchases, and providing stronger consumer protections.

The Bottom Line

Though convenient, buy now, pay later comes with a risk of overspending. Consider using other payment options to protect your finances. To start, check your credit score to gauge whether you qualify for a credit card with more flexibility and better terms. If your credit could use some improvement, you could get a score increase right away using Experian Boost® to get credit for eligible bills you already pay, such as rent, insurance, streaming services, and utilities.

At O1ne Mortgage, we are committed to helping you make informed financial decisions. If you have any mortgage service needs, don’t hesitate to call us at 213-732-3074. We’re here to assist you every step of the way!