Buy Now, Pay Later (BNPL) schemes: What to do if you want to buy now, but can't pay later Image Credit: Borko Manigoda

‘Buy now, pay later' (BNPL) can be a convenient payment method. But if you don't factor the recurring payments into your budget, it can get messy.

This is especially true if you're juggling multiple buy now, pay later plans on top of other debts. The credit inquiries that some lenders conduct when you apply for any type of credit don't always offer visibility into buy now, pay later plans you may hold with different companies, so it may be possible to bite off more than you can chew.

The world’s major credit bureaus, is aiming to change that in the first quarter of 2022 by formalising a process for including buy now, pay later information on credit reports.

Part of the push here is to support responsible lending, when a company lends, they want to make sure the consumer can handle that new credit account and can in fact pay it back.

An unpaid buy now, pay later balance could get sent to collections and potentially hurt your credit history.

An unpaid buy now, pay later balance could get sent to collections and potentially hurt your credit history. Late fees may also apply, depending on the company. And you could be barred from using the service temporarily or permanently.

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Take action early to avoid these consequences and explore some options that can free up money to keep your finances on track.

1. Scan your finances for opportunities

Revisit your budget (or create one) to understand where money is going. Consider adjustments on non-essential expenses.

“Do you need all of those subscription services you have now? Is there a way to get a cheaper cell phone plan or a cheaper cable plan or shop for cheaper insurance?” said Katie Bossler, quality assurance specialist at a US-based non-profit credit counselling agency.

Prioritise essentials like housing, food, utilities and medicine, and look for ways to save in other areas. Financial assistance with bills might be offered for those with income under a certain threshold.

2. Part ways with the item purchased

It might be possible to return the item to the merchant for reimbursement. Some buy now, pay later companies don't refund the money paid on interest, but you may come close to being made whole. Payments may still be due while the refund is pending.

If a merchant won't accept a return, consider selling the item to recoup some of the money. You may find a buyer on social media marketplaces, apps or websites. Some online marketplaces may take a cut of the sale, so understand the terms before listing the item.

It might be possible to return the item to the merchant for reimbursement.

3. Change your due date or payment method

Before missing a payment, get in touch with the buy now, pay later company to explore options. Each company has different policies on whether you may extend the payment due date or change it.

Bossler recommends trying to align your due dates with the pay period that offers you the most breathing room. If your plan requires bi-weekly payments, “it might be possible to switch to a monthly payment,” she added.

Or, if you originally used a debit card to set up the buy now, pay later plan, ask if you can switch the payment method to a credit card. You may incur interest with a credit card and will have to keep up with that bill, but it can buy some time if you're worried about overdraft or late fees.

4. Consolidate your other debts

Consolidation may not be ideal, or even permitted, for buy now, pay later plans, but consolidating high-interest debts elsewhere can free up money:

• With good credit (scores of 690 or higher), you may qualify for a balance transfer credit card with a 0 per cent intro rate, allowing you to move debt from a card with a higher rate. You'll typically pay a fee – at least 3 per cent of the amount transferred – but it might be worth it to save on interest for a year or more.

• For debt that will take longer to pay off, you could consider a low-interest personal loan. Factor in the cost of the origination fee (fee charged by the lender in exchange for processing a loan) and monthly payment to determine whether you'll save money over time.

• A debt management plan may offer a way to consolidate credit card debt and other balances into one payment at a fixed rate. You'll owe a fee, but the savings usually outweigh the cost.

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