Should you buy now, pay later?

MICHELLE GRAFF: Good afternoon, and welcome to today's webinar, "Should You Buy Now, Pay Later?" My name is Michelle Graff, and I'll be moderating today's session. Before we get started, I'll go over a couple of housekeeping items. All participants have been placed on listen-only mode to prevent any background noise. 

And we'll not host a live Q&A, but if you do have additional questions following today's session, we recommend you book an appointment with a goals coach or a banker at usbank.com. We'd love to hear your feedback on this webinar which you can provide using the post-session survey. And today we're going to explore how buy now, pay later works, along with ways to brush up on your budgeting skills. We have two fantastic speakers who I'm now going to pass the mic over to to introduce themselves. 

NICOLE FREEMAN: Thanks, Michelle. Hi, everyone. My name is Nicole Freeman. And I have worked at U.S. Bank for a total of three years in the role of a goals coach. I work to assist clients in discovering their goals and creating a plan towards achievement. And I'm here today with my wonderful coworker, Tiffany. 

TIFFANY FRITCHMAN: Gosh. Hello and good afternoon, everyone. I am Tiffany Fritchman. And I have worked for U.S. Bank for a total of 15 years. I am a goals coach, just like Nicole. And I have worked in retail banking and helped clients through everyday banking needs like budgeting behaviors all the way up to securing finance for their forever home. 

So what exactly is buy now, pay later? Maybe you've seen it being offered but have never used it. Or maybe you're a buy now, pay later pro. Either way, it may be beneficial to learn how buy now, pay later works to help you develop healthy financial habits while you use it. 

For those who aren't already familiar with it, buy now, pay later provides a way to buy and own something now and pay it off in installments over an agreed-upon period of time. Buyers usually don't pay interest on the amount or any fees for the service, providing they make all their payments on time and in full. The merchant, the store making the sale, is the one paying a fee to the buy now, pay later service providing for the arrangement. 

At face value, it seems like a great deal for anyone who wants to indulge in an impulse buy, something right now, without having to pay for it right away. But like any type of consumer lending, buy now, pay later has some pros and cons you should be aware of if you're planning to make a habit of using services like Klarna and Afterpay. Over to you, Nicole. 

NICOLE FREEMAN: Thanks. So let's talk about some of those pros. First things first, it's fast, and it's convenient, and there's little to no cost for consumers if you adhere to your buy, now pay later agreement. So whether it be clothes shopping or planning for a trip, I've used Klarna in my past history. 
And the biggest lesson that I've learned with using buy now, pay later has been that although they do a soft credit check for approval, it can affect your credit if you don't pay it back on time. I've also learned that although payments are smaller, it's best to make sure that those small payments can fit in your budget later. From cosmetics to airline tickets, furniture and more, buy now, pay later has disrupted the financial industry, creating easy access for consumers to make purchases. 

According to an April 2022 report from Experian, 57% of consumers say that buy now, pay later could replace their credit card. That's huge. This is thanks to minimal requirements to apply and easy repayment options. While terms of agreement and loan amounts may vary from app to app, the sentiment of ease and convenience sticks with consumers everywhere. 

So when do you sign up for buy now, pay later? You can often apply for this service for a specific purchase at checkout or open an account ahead of time. Buy now, pay later generally doesn't require a hard credit check, which affects your credit scores, and may be available to people who don't have good credit or any credit at all. However, a buy now, pay later provider might approve or decline the purchase on a case-by-case basis. 

So your ability to use buy now, pay later could depend on your previous usage with the provider, how much you're spending, what you're buying, and where you're shopping. You may also be limited to using buy now, pay later at certain stores. However, some of these companies have virtual or physical debit cards that you can use at any store that accepts the associated mobile wallet or card network. 

So for people seeking an easier, less expensive way to borrow and spend, buy now, pay later ticks both of those boxes for you. But there are also some cons in using buy now, pay later. Tiffany, can you tell us about those? 

TIFFANY FRITCHMAN: Absolutely, Nicole. So, so far, we've talked about a lot of the pros on that fast and easy way to-- with some purchasing power. But we do want to provide you with some risks associated with buy now, pay later, so you can make some informed decision. And I'm going to say that one more time-- "informed decisions," because it's very important that when you're looking at things like buy now, pay later, you stay very up to date with what you're doing. 

So let's talk about some of those. There are some hidden costs. One thing to consider if you decide to use buy now, pay later is if you don't have the discipline to manage your budget to keep up with those repayments, the penalty fees and interest can soon add up. Taking too much on can cause the need to delay a payment on another bill to budget for these repayments, borrowing money, or even becoming overdrawn. That's not good. 

We recommend first being conscious of your household budget and what you can actually afford to repay if you're considering buy now, pay later to make a purchase. So maybe that really fun new outfit you wore on Friday night was really great. But now it's bill time, and you're having a hard time making those basic bills. So, possibly something to consider. It can also damage your credit score. 

Missed buy now, pay later payments and loan defaults are reported to credit bureaus. So misuse of buy now, pay later can hurt your credit score. Even worse, on-time payments aren't reported. So buy now, pay later doesn't help you build that credit score. Plus, some buy now, pay later providers do a soft credit check. While one or two of these are OK, too many soft inquiries may create a hard check and damage your credit score. 

Access to more than you can afford-- with the growing popularity of buy now, pay later, particularly for online shopping, it's becoming common for stores to advertise product prices in installments. This can make a purchase seem more affordable and potentially encourage people to buy more expensive items than they would if paying the full amount. In a poll by Ascent in March of 2021, 45% of US adults who were buy now, pay later users said they use these services to make purchases that otherwise would not fit in their budget. 

Research from a consumer research firm, Piplsay, found that though 74% of buy now, pay later users were able to make their buy now, pay later payments on time, there were 14% that missed a payment once and 12% that missed a payment more than once. As some buy now, pay later providers do report to credit bureaus, late payments may affect an individual's credit score. So Nicole, over to you. 

NICOLE FREEMAN: Thank you. So let's stay on top of spending, right? That sounds like the most important thing here. So research various buy now, pay later apps and their terms and fees, because you need to know which one fits you just right, kind of like buying the perfect pair of shoes, right? Identify your needs versus your wants to help reduce impulse spending and creating a budget with realistic targets. So let's talk about that. 

So most of the research suggests that these apps are here to stay. Here are a couple of ways that you can take advantage of the benefits of those buy now, pay later apps without running into trouble. So many apps have different terms and fees associated based on what you purchase. We recommend reading the terms of agreement before you use it with your purchase, so you are not surprised later on. Please, don't be afraid to ask questions on the front end. 

Another way to help set yourself up for success is prioritizing your needs versus your wants. Sometimes you see an amazing outfit that feels like you just have to have it. I know I've been there. However, our needs are those essential items required for life like our food, our house, a working heater, or an air conditioner. Those wants may include that brand-new outfit, those Louis Vuitton shoes, or that updated car stereo. It's good to consider if your needs are taken care of before considering those wants. 

And thirdly and lastly, create a budget with realistic targets. There are plenty of budget templates out there. So make sure you're creating a budget that's realistic for you and your life. And we'll brush on a couple of those budgeting tips next with Tiffany. Tiff, take us away to budgeting tips. 

TIFFANY FRITCHMAN: All right, absolutely. So for some people, having a budget in place is like wrapping up in a warm, fuzzy security blanket. They feel comforted knowing exactly where, when, and how they will be spending their money. However, for others, budget is basically the biggest headache ever. Or is it that budget makes them save backwards? 

Either way, why is it that budgeting is so polarizing? Because I'm not a trained or licensed therapist, I can't give you a clinical reason why people feel that way. But as a goals coach, I'll share what I've learned and observed over the years. People would rather spend their money enjoying life than paying bills. It's that simple. 

Unfortunately, banks, car dealerships, and other lenders aren't particularly interested in what we'd rather do, and therefore expect us to pay our bills before we have any fun. One fun tip is research and take advantage of those sales. Always look for the lowest price on the item you want and comparison-shop to make sure you get the best deal. 

Many big-ticket items go on sale at certain times of the year, just like Black Friday, the lead-up to Christmas. Memorial Day's another one, and then, of course, President's Day. The internet makes comparison shopping easier than ever. So be sure to set up price-tracking alerts on several sites for when prices drop. 

NICOLE FREEMAN: Yes, and some other tips are, where are you comfortable spending? Just because you qualify doesn't mean it's livable. I am going to provide some general budgeting tips to help keep you on track. First, disable that one-click buying. I know that's an issue for me on Amazon. 
A super simple trick that I recommend is looking to save is to disable one-click spending. Smartphones have gotten very smart by allowing us to save our credit card or debit card information into our desired websites like Amazon. You may need new dishes for your new phone and go to Amazon and end up purchasing all the decorations for your home. 

By disabling one-click spending, it provides an extra step before every purchase, therefore making you think twice whether you really need it in that moment or not. Reduce expenses. Find out what you can cut out. A good place to start is looking at your subscriptions like Netflix, Hulu, or even Disney Plus. I know I'm a big Disney Plus person. 

Also, printing out your last two to three monthly bank statements can be extremely helpful in highlighting where you may have done some unnecessary or impulsive spending. This will provide you with a visualization of where you can improve your spending and what areas you can be more conscious of when you're spending. And lastly, plan ahead. 

Make a note of when your buy now, pay later payments are due and put a reminder on your calendar. If you can, make saving transfers automatic, so you don't even have to think about making any money transfers once you have the set amount that you would like to save, and have that transferred for you on payday. This will help ensure that you're ahead of those upcoming payments. And then, Michelle, can you tell us some additional resources that we can find? 

MICHELLE GRAFF: Absolutely. At U.S. Bank, whatever your situation is, we're going to help you. We have some great resources today. I just was thinking about how you both reminded me that I need to take the shoes out of my cart that I put online today. Thanks for the reminder on that, but all right. 
One of the great things about U.S. Bank is that we have many resources offered through Financial IQ. Visit usbank/financialiq to explore more articles on a variety of financial topics, including buy now, pay later. There's a lot of great knowledge out there. Would totally recommend. It's one of my favorite parts. And then I'm also going to pass it back to our wonderful goals coaches who are going to tell you a little bit more about how you can book an appointment with them. 

TIFFANY FRITCHMAN: Thank you so much, Michelle. So if some of these scenarios resonate with you, may want to start working on getting prepared. There are a number of resources, including talking with a goals coach like Nicole and myself. The process of preparation may bring to light a need to organize a better budget, get on top of your debts, establish better spending habits all around, and many others. 
So there are lots of coaches. We have a total of 13 here that would be more than happy to meet you exactly where you are. And whether that is you don't have a budget, and you need help creating one, that's OK. We meet you where you are so that we can bring you to wherever it is that you're trying to get to. 

So if you look at this slide, you can pull out your cell phone and use that QR code. And that will take you to our website for goals coaching, where you can book an appointment one-on-one with a goals coach just like Nicole and I. And we're happy to meet you where you are. 

MICHELLE GRAFF: Awesome. Thanks, Tiffany, and thank you, Nicole. Thank you for putting together this wonderful webinar and being our speakers today, such great information. And I just wanted to remind everyone that we're going to post the recording from today's presentation at usbank.com/wellnesswebinars in the next week. And please don't forget to provide us with your feedback in the post-event survey following this session. 

And we hope you can join us for our next webinar, which is on October 27 at 1:00 PM Central Time. And that topic is how to stay safe from cyber fraud. So with that, this concludes our webinar. And we hope you have a wonderful afternoon. Thank you. 

NICOLE FREEMAN: Bye.