What you should know about using multiple loan products at the same time

You’ve likely heard the words “buy now, pay later” (BNPL) on the news or seen a BNPL option when you get to the checkout page after an online shopping spree. BNPL services, which are essentially point-of-sale loans, have grown significantly in importance over the past year, with big names like Amazon entering into partnerships Confirm (a popular BNPL provider) and Mastercard to announce the launch of their own BNPL service.

Why has BNPL’s popularity skyrocketed? Researchers at TransUnion examined nearly 4.5 million POS applicants and found that the main reasons for using BNPL were to spread their payments over time and improve usability.

With BNPL, a $ 200 purchase can be split into four (potentially interest-free) payments of $ 50, paid every two weeks. Additionally, most major retailers have the option built into their websites so consumers can be approved for a loan almost instantly, as many do not require credit checks.

The study also found that applicants were more likely to have greater numbers of cards, such as credit cards and retail cards, than the general population.

“This study shows that these consumers are more creditworthy and hungry,” said Liz Pagel, senior vice president of consumer lending at TransUnion. “I think these are consumers who want to finance their retail purchases and also want to finance other parts of their lives.”

In the study, POS loan applicants had similar loan utilization rates across risk levels. In other words, POS applicants looked for these credits even though they could write purchases on their credit card.

Should Consumers Use POS Loans If They Already Have Credit Cards? How can “credit hungry” consumers balance multiple credit options?

We spoke to Kate Mielitz, Assistant Professor of Family Financial Planning at Oklahoma State University, about how consumers should manage their credit card and BNPL loans.

When you juggle regular credit card payments in addition to the bi-weekly installment payments for a POS loan, it can be difficult to keep track of all of your expenses. You should know the due dates for all of your payments and set up auto payment to make sure you don’t miss any payments or pay any fees or high interest.

While some BNPL providers do not charge interest on their POS loans, others, such as Confirm, can charge up to 30%. In addition, you can pay high default interest on a loan with 0% interest rate: additional payment charges $ 8 or 25% of the transaction, whichever is lower.

When it comes to your credit card, failing to make the minimum payment before the grace period expires could result in a late fee of up to $ 40. Also, if you fail to make the payment in full, interest will accrue. If you’re not on time with your payments for your BNPL loan and credit card, you could end up paying more late fees and interest than you did on your first few purchases.

The other thing to consider is whether a purchase with a BNPL loan will fit into your long-term budget.

BNPL delivers instant gratification to consumers. You don’t have to have enough money to pay for a pair of new stilettos or an expensive exercise bike. Instead, you will receive the product immediately (provided you have enough for a deposit), regardless of whether or not you can actually afford it.

Mielitz suggests customers make purchases with a BNPL loan that they cannot afford in advance. If you don’t have enough cash in your checking account to cover the costs, it’s best to avoid buying if you can.

Finally, you should compare and contrast the pros and cons of using a POS loan versus a credit card to fund your purchase. If you’re looking to improve your credit score, it’s probably better to go for a credit card, as many BNPL providers don’t report to the credit bureaus, Mielitz says.

While on-time payments for your POS loans should help your score, they could actually hurt it in the end. By opening a new POS loan, you will reduce the average age of your credit history, which will decrease your credit score.

Credit cards also give you the opportunity to reap more rewards. the Chase Sapphire Preferred® card currently offers a welcome bonus of 100,000 points which is worth $ 1,250 when redeemed for travel when you spend $ 4,000 within the first three months of opening your account. While some providers like Klarna Rewards programs, you will likely make more money from credit card welcome bonuses and the cash back and / or points they offer to spend.

If you’re drawn to the longer repayment period and 0% interest on some BNPL loans, you can also consider a 0% APR credit card – some even have welcome bonuses and rewards. These cards have an introductory period, usually between 12 and 20 months, during which cardholders do not have to pay interest on their revolving balance.

the Wells Fargo Active Cash^SM map is one such possibility. The Active Cash Card has a 15-month introductory period of 0% for new purchases and qualifying credit transfers (thereafter a variable APR of 14.49% – 24.99%) and is rewarded with a bonus of $ 200 in cash after you Spent $ 1,000 within the first three months of the year to open an account. With this card you receive rewards such as 2% cash bonuses on all eligible purchases and benefit from an introductory period of 0% APR.

When it comes to juggling monthly credit card payments and bi-weekly credit installments, consumers should know exactly when payments are due, what the late and late interest rates are, whether their purchases fit their budget, and what impact both products have on their creditworthiness. But most importantly, you need to make sure that the purchases you make with your credit card or BNPL loan are in yours Budget and that you can ultimately afford it.