New consumer pitfalls to look out for this holiday season
There are plenty of deals to be had for holiday gift giving – Black Friday, Small Business Saturday, Cyber Monday – on top of an already competitive market filled with attractive options.
A good deal or bad debt: Buy Now, Pay Later Loans
You want to get the best deal but what happens when that deal is still too expensive? Buy Now Pay Later (BNPL) loans are one of the latest crazes in online shopping.
“Purchase this item making four payments…”
“Open a credit card and get six months of interest-free financing…”
The concept isn’t new, but it is increasingly common with online retailers. These offers might look like a good deal up front, but don’t forget to read the fine print. BNPL loans can come with extensive penalties that may have you wishing you never signed up.
“They are offering you this because you want something today and cannot pay. You will eventually pay,” said Michelle Presenell, United Way of the Plains Community Impact manager for Financial Stability (below).
“A lot of folks use non-traditional financing for purchases and there are many traps. These offers are time bound and if you struggle with cash flow, you need to be especially careful about finance offers that auto-draft your account.”
Not enough money in your account = overdraft.
Late payment = penalty.
Didn’t pay the BNPL loan off on time = paying interest that could be overwhelmingly high.
Does this mean that these BNPL loans are bad? Not necessarily, but when you are shopping online and select this option, you need to remember that this is a form of debt.
Not so good at gift giving? A word of caution for BNPL loans and item returns.
When you purchase a gift using a BNPL loan, you are actually doing two things.
- You are purchasing a gift from a retailer.
- You are financing the gift from a lender, who may NOT be the retailer.
This can easily complicate returning a gift. According to the Consumer Financial Protection Bureau, you may still have to make the payments on the BNPL loan, even if the recipient returns the gift, and wait for account to be issued a credit.
“This is different from your right to dispute items or services purchased with a credit card. BNPL lenders are not subject to some of the consumer protections applicable to credit card companies,” according to the Consumer Financial Protection Bureau. Learn more advice from the Consumer Financial Protection Bureau about returning merchandise paid for through a BNPL loan here.
If you are thinking about not paying the loan when waiting for a credit or resolving a dispute, a word of caution: the loan could be sent to collections.
Are there alternatives to BNPL loans?
Yes, you have options.
First, set a budget for holiday gift giving. Knowing how much you can responsibly afford before major discount dates will help you stay financially stable.
If you already have a relationship with a bank, see if they offer holiday financing loans. While you are still accruing debt, working with a local lender offers a face-to-face opportunity that online BNPL loans do not.
If you reside in south central Kansas and don’t have a trusted banking partner or do not qualify for traditional banking, Bank On ICT could help. Bank On ICT connects people with safe, affordable banking services – even if they’ve been turned down or turned away in the past. Learn more here.
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