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Shoppers: Choose Your Own Buy Now Pay Later (BNPL) Adventure
Chapter 1: The Journey to the Shopping Cart
Making an online purchase isn’t always easy. In fact, there’s much more to this decision than a few clicks. As a shopper, you need to evaluate your needs, find the item, compare products (oftentimes switching between devices), and make a final choice. Whew!
Then, you’ve got to make it through the checkout! Almost 70% of shoppers abandon their shopping carts before finalizing their purchases; this number rises to 85% on mobile devices. Considering how complicated payment options have become, it’s no wonder that shoppers walk away from most of their potential purchases.
Chapter 2: I’m ready. Now what?
Shoppers used to make purchases any way they could, limited by the options offered by that retailer, primarily using cash, checks, or cards. However, online retail has evolved and merchants are now providing a myriad of payment choices. This is good, as it gives you, the shopper, the power to determine your own monetary path. You can make purchases in the smartest way possible, taking payment fees, credit card debt, and interest into account.
However, all of the choices can be incredibly confusing. What option is actually the right one for you, at this moment?
Make sure your intentions are clear. Start by asking yourself a few questions:
Can I afford this purchase right now, with the money I have in the bank?
Wonderful! Congratulations on planning for this purchase. Your budgeting has paid off and you can click “Order” with confidence! Consider using a credit or debit card that earns points or airline miles to reap the most benefit from this transaction.
Remember to pay your credit card bill on time (in full!) or set up the auto-pay option with your bank. In fact, if you want to make paying in full easier, consider Splitit. It breaks your total purchase into smaller, bite-sized payments while still using your favorite credit card. It helps you pay less credit card interest while still collecting rewards points, miles, or other card benefits.
Yes, but then I won’t have money for other purchases.
Skip ahead to the next question.
Skip ahead to the next question.
Do I have enough credit on my existing credit cards to make this purchase?
You can maximize this credit to work for you. Credit cards charge upwards of 12% interest (and many as high as 24%) for the service of paying the merchant in full on your behalf while allowing you to pay the balance off in monthly installments.
This isn’t inherently bad and can be a huge benefit to consumers. But… are you tired of owing interest and fees to the credit card company? Would you like to use your existing credit to make a purchase, pay the purchase off over time, and NOT pay interest or fees? We like that option too!
Consider the Splitit BNPL solution. If you choose Splitit, you’ll use an existing credit card to split your payment into smaller pieces, payable over time. Splitit doesn’t charge interest or late fees – which goes a long way towards keeping your payments small.
You may be wondering exactly how this works. Splitit uses your existing credit and puts it to work for you. Splitit pays the merchant directly and bills your credit card in small, manageable payments over time. A hold is placed on your card for the full amount of the purchase, (remember, you’ve got the credit) but no credit card interest or fees are incurred for the duration of your payment plan unless you don’t fulfill your obligation to pay off the installments each month. Since you already have the credit, there’s no application or additional credit check. Plus, you continue to earn points and rewards if that’s a benefit of your credit card.
This is a great solution if you have the existing credit to buy the item(s), but the interest and fees make the purchase unmanageable or not worth it.
Even if you don’t have existing credit, there are a lot of BNPL options to choose from. PayPal’s “Pay in 4,” Afterpay, Affirm, QuadPay, and Klarna are all viable choices. Read on to learn which of these solutions is best for your personal situation.
Chapter 3: I don’t have enough credit to make this purchase, or the merchant doesn’t offer SplitIt.
BNPL solutions become extremely attractive when the traditional payment methods aren’t available to you. We won’t mince words – 2020 has been a challenging year for so many people. Millions find themselves teetering on the edge of financial solvency. However, life continues.
We’re not here to judge why you need this purchase – perhaps it’s of vital importance to your health or safety, maybe it’ll change your life for the better or it’s your granddaughter’s first birthday. The point is that you need to buy something, and you need a solution that’s more thoughtful and nuanced than traditional payment methods.
Both the amount of the order and your credit history factor into this decision. Let’s look at the purchase first.
What is the total amount you wish to spend?
Less than $500
For amounts under $500, you have two great options. You can use a BNPL solution where you apply for additional credit or you can use Splitit so that the purchase has a smaller impact on your monthly credit card bill.
BNPL options appeal to shoppers when money is tight and the ability to break a relatively small amount into installments – perhaps paying from a debit account as weekly paychecks come in – makes all the difference. The lower the amount, the more likely it is that your application for credit will be approved.
Splitit appeals to shoppers in several ways. It helps you if you have available credit on your existing cards but you don’t want to run up your bill all at once. In other words, it’s budget-friendly for people whose finances are tight, and it’s also friendly to people who have mastered the art of budgeting, handling their monthly bills, after making the most of their card interest rates and rewards
For higher ticket purchases, if you have the available credit, Splitit may be your best option as their long repayment window of up to 12 months will save you a boatload of traditional credit card interest. However, if you don’t have the available credit to make a large purchase, what should you do?
Affirm gives loans of up to $17,500 and you can choose the length of time you need to pay. However, they do charge interest at all retailers aside from Walmart. The payment schedule, including interest, is exact and very clear. They remind us of a traditional credit card— it’s a nice option if you’re short on cash, low on credit, and need or want to make the purchase.
Chapter 3: Credit history – the subject everyone loves to hate
BNPL options aren’t credit cards, so why does your credit factor into this? The short answer is that your credit (or lack thereof) doesn’t necessarily make you ineligible to use a BNPL solution.
The longer answer is that BNPL companies are still financial service providers. You’re making a promise to pay them over time. They’d like some degree of certainty that you’ll meet this obligation. That said, let’s dive right in.
Take a moment to take an honest look at your credit history. How would you rate yourself?
Strong credit – I almost always pay my bills on time and have been doing so for a long time (5+ years). This includes credit cards, mortgage/rent, utility bills, medical bills – everything.
Well done! We know how hard this is, especially when credit card interest and fees can snowball so quickly. If you have the money in the bank for the purchase you’re contemplating, you already know you could probably just pay for it outright!
If you would rather pay over time, with your stellar history, you likely have a good amount of available credit and can take advantage of Splitit’s interest-free monthly repayment option.
Eh…trying to build it. / I’m pretty new at this and don’t have much credit history. / What’s credit history again?
Maybe you’re a newly-minted adult, complete with a job and desires, but not much financial savvy aside from a checking account with a linked debit card. Or perhaps you’re just climbing out from a mountain of debt and don’t want to fall off the financial wagon.
Regardless, you need help making a purchase and a buy-now-pay-later option is incredibly attractive. To build anything, especially credit, we recommend starting small.
PayPal’s “Pay in 4” may fit your situation. PayPal is accepted at many retailers. They loan purchase amounts of $30-$600 for a small, upfront percentage payment, payable over 6 weeks. Afterpay, also, works in this instance. Every purchase and subsequent on-time payment factors into your next approval.
Finally, you can use Splitit to help you build up your credit history, too. Let’s say you have an available limit of $2,000. If you want to buy an item that costs $1,500, you’d be using 75% of your limit, which is a negative for credit reports. You might also be tempted to pay it off in minimum payments because the amount is a bit intimidating.
With Splitit, if you chose six installments, you’d only have a $1,500 hold, while the monthly charges are $250 each month. Now, you’re using just 12.5% of your limit, which credit reports see as more favorable. You’re also in a better position to pay in full each month, which is also a behavior that credit bureaus love to see.
Shaky at best
Things happen. This year of all years, we get it. Having questionable credit isn’t a death sentence and even small actions can have a big impact. For example, make sure you’re putting the most money towards your highest interest balance each month. Chipping away at this bill will eventually free up cash to put towards other obligations.
In this scenario, BNPL options can be frustrating – just another thing out of your reach. But because many of these options offer “soft” credit checks (which don’t impact your credit score) – they’re worth trying. If you’re approved, they’re a great way for you to begin to redeem your credit history. At the very least, you prove to yourself that your budgeting has evolved and you can meet your commitments.
If you’ve been able to pay down some credit card balances a bit, you can use this available credit to make a purchase with Splitit, bypassing the hamster wheel of interest and fees.
Chapter 4: I want to be a cash flow superstar
Your choices about how to pay for a purchase are not always about affordability. Sometimes, your goal is to improve your cash flow. You want to keep more control over how much money comes in and how much money goes out each month.
If you’re financing a purchase with new credit that you get from a BNPL financing option, you will have an additional bill to pay. In most cases, that bill comes due every two weeks and the payment is taken automatically. It might seem like a small amount, but that “disappearing” $50 or $100 dollars every two weeks becomes another outflow you have to manage carefully, especially if those payments pull from a debit card and might cause an overdraft. It’s a tradeoff — you can buy an item that you want or need now, which is good, but you are adding a new piece to your cash flow puzzle, which creates a new responsibility.
Splitit works differently for cash flow superstars. Because it puts a hold on your existing credit card, it doesn’t create a new bill for you to pay. It also helps make sure you don’t go over your limit because the purchase amount has been held. The hold decreases each time a monthly payment is charged. The only amount that you’ll see on your credit card statement each month is the monthly installment payment, which helps you spread out the total purchase over time.
Chapter 5: A reckoning for traditional credit cards
Most of the BNPL solutions discussed here put the burden on the retailer. This is a HUGE shift in the credit industry. Up until now, the burden has always been on the shopper. When engaging with the ancestor of BNPL solutions, in-store lay-a-way plans, shoppers had to complete all of their installments before bringing the item home!
When credit cards became ubiquitous, at least shoppers were able to use their items immediately. But credit card companies carry a big stick. They’re incredibly punitive and often malicious – charging hidden fees and raising interest rates. A single mistake or misfortune on the part of the shopper can spiral into years of financial entrapment.
BNPL solutions are poised to massively shake up the credit industry. They’re capitalizing on what retailers have known for years – put shoppers’ needs first. They realize interest and late fees are the primary reasons shoppers are unable to meet their financial obligations. Without these extra expenses, shoppers would have more money to spend on the items they want to buy. Sure, consumers still have to honor their commitments, but they have time to do so, without the snowballing that occurs with credit cards.
Remember, with a credit card purchase, if the full amount isn’t paid off within the first month, interest and fees are added to the bill. And they just keep coming. This effectively raises the purchase price of the original item. The longer it takes a shopper to pay, the more fees and interest accrue. The more fees and interest that accrue, the longer it takes a shopper to pay. The circle goes on and on.
Companies like Splitit put the burden of paying in installments directly onto the merchant – charging the retailer fees to offer pay-over-time solutions to shoppers. Online retail competition is so fierce that companies are desperate to stand out any way they can.
Selling a great product is no longer enough – merchants need to ship their goods to us for free, accept returns with no questions asked and bend over backwards to offer zero-interest, no-fee payment plan options. Lucky us. What will they think of next?