Beware of the “Buy Now, Pay Later” Psychological Pitfall

Finding ourselves tempted by flexible repayment options is understandable because we receive constant messages from advertisers that we need the latest clothing, makeup, or possessions to make ourselves worthy and lovable.

Marketers use psychology to make us spend our money. Even though they are only a small portion of overall spending, buy now and pay later (BNPL) arrangements are on the rise. By 2025, experts believe they will top $1 trillion in annual gross merchandise volume in the United States.

My client, Jessica, found a Givenchy black dress online that she couldn’t live without. The $2,000 price tag was way beyond her budget, but when she discovered she could buy now and pay later, that little black dress seemed not so far out of reach.

Jessica committed to four $500 payments, and it seemed “doable” until she needed new tires for her car. Now she was in a real financial bind — and one that negatively impacted her mental health as financial anxiety and worry consumed her mind.

The appeal of BNPL is that you can make installments over time instead of paying the full amount upfront. Plus, you get the instant gratification of having the merchandise in your hands. And the bonus of not having to pay interest.

As a result, it’s become increasingly popular with Millennials and Gen-Zers. If you are prone to making impulse purchases (which can sometimes be related to unmanaged mental health issues such as ADD/ADHD, addiction, substance abuse, low self-esteem, anxiety or depression) these offers can be especially tempting.

Are You Being Targeted? Don’t Be Played a Financial Fool

People who aren’t eligible for credit cards qualify for BNPL programs because there’s no formal credit check. Unfortunately, this places two groups at risk of making purchases they won’t be able to pay back:

  1. People with no credit, such as teens and young adults. They may lack the financial literacy to know their budget and cash flow and whether or not they will be able to make payments when they are due. They may not understand the fees for usage or fines for late payments. Stress, feelings of overwhelm, and relationship conflict with parents, roommates, partners, or loved ones can be the result.
  2. Those with poor credit. This may include the poor and people who are overextended with their credit. People with addiction issues, such as drug or alcohol problems, gambling, or compulsive spending may also be susceptible. BNPL perpetuates and exacerbates financial problems as well as addictive and compulsive behaviors.

Both groups may try to pay the BNPL installments with high-interest credit cards and fall into unmanageable debt, leading to financial and mental health problems. Financial distress accounts for 16 percent of suicides in the US and correlates with lower life satisfaction, higher stress, anxiety, and depression.Recognize if you are in these groups and prioritize your mental wellbeing.

Avoid Slipping Into Financial Denial by Becoming Financially Conscious

To prevent falling into the temptation of BNPL, consider the following:

  • BNPL makes it easier to overspend. You may be tempted to buy something like a Prada bag for $1,500 if you can make four payments of $375 or a MacBook Pro for $1,200 if you can make four payments of $300. Psychologically, the four payments make the hefty price tag sound better by presenting them in seemingly manageable bites. If you do this regularly, it’s easy to lose track of when your payments are due. In a recent LendingTree survey, two-thirds of people who have used financing claimed they spent more money than they would have otherwise. Almost half said they wouldn’t have bought something if they didn’t have a financing option.3
  • Fees can add up. Just like credit cards, BNPL companies charge merchants a fee on every transaction. Some apps also charge users a fee per payment to use their platform. Check the fine print. And if you miss payments, you may be charged a late fee.
  • BNPL can be hard to manage. If you sign up for more than one service, it can be hard to keep track of payments as most are due every two weeks, not monthly like credit cards.
  • BNPL may affect a loan application. Lenders consider BNPL spending when applying for a car loan or home mortgage.
  • Late repayments can appear on your credit report. This may impact your ability to borrow money in the future. Here’s why: Every purchase you make using BNPL is considered a separate account on your credit report. It closes when you pay off your balance. One of the considerations for your credit score is your credit history, which takes into consideration the average age of your account, since most pay now, pay later are due within a month or six weeks, it can decrease your credit score by lowering the average age of your accounts.

Prioritize Your Mental Wealth and Be Financially Wise

Here are some healthier options to consider as alternatives to BNPL:

  • Only buy what you can pay for in cash. Before shopping in person, have the words, “No, thank you” on the tip of your tongue so you are armed when even the cutest salesperson tempts you. Before shopping online, prioritize your mental and financial health. Have a mantra such as, “Say no to debt” or “I care enough about myself to live within my means” that you silently say to yourself as you select your purchases. Avoid shopping when in a poor mood state or when under the influence of drugs or alcohol as this may impair your impulse control.
  • If you choose to use credit cards, pay them off in full each month to avoid costly interest charges or late fees. This takes discipline. Consider enlisting the help of a friend who is also working on improving their financial health who could serve as an accountability partner and schedule monthly financial check-ins.
  • Participate in counseling or therapy to address your psychology of money and related issues.
  • Seek consultation from a financial planner, personal banker, representative from your credit union, or a debt consolidation counselor who can assist you with budgeting and providing accountability.
  • Consider twelve-step support groups such as Spenders Anonymous, Debtors Anonymous, or Gamblers Anonymous.

Remember, your worth does not come from what you wear or the items you own. You are innately worthy and deserving of all that is good. You are worth saying no to BNPL offers that may negatively impact your emotional and financial wellbeing.

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