One option to spread out payments on large purchases is to use retail credit cards or buy now, pay later plans.
They both function differently, though: whereas the former usually entails making fixed payments over time, the latter necessitates subscribing to a new credit line.
“It really just depends on your specific situation, either tool can work for you,” said Matt Schulz, LendingTree’s top credit analyst.
There are ways to spread out the payments for expensive goods, particularly during the year-end holiday shopping season, including retail credit cards and buy now, pay later plans.
An item you purchase can be taken with you instead of being left at the store until it is paid for. This is known as buy now, pay later, or BNPL. It is essentially a modern takeaway plan. You may also take an item home right away after purchasing it by using financing offers from retail credit cards, although these plans function differently from BNPL plans.
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These credit cards have “increasingly notable” high interest rates. “Cash stuffing” may result in the loss of “the easiest money.” Borrowers of student loans are forced to reenter the “messy system.”
This year, consumers who intend to spend hundreds of dollars on holiday gifts would want to weigh the advantages and disadvantages of each payment method.
“It really just depends on your specific situation, either tool can work for you,” said Matt Schulz, LendingTree’s top credit analyst.
Experts offer advice on how to choose the program that would best suit your needs and financial objectives.
It’s like receiving a brief payment extension—grab it now, pay for it later. “A ‘buy now, pay later’ deal can be quite tempting if you’re looking to stretch out the time to pay for something,” said Schulz. With BNPL, you can purchase an item immediately and pay for it over a predetermined length of time by either bringing it home or having it delivered. NerdWallet blogger and credit card expert Sara Rathner explains it all to you.
Although enrolling in these programs may seem less daunting than accruing credit card debt, consumers must be vigilant. Rathner claims that depending on the business and the conditions of the contract, interest or other costs may still be included in those monthly payments.
Managing several BNPL accounts at once might be challenging as well. “You’ll notice withdrawals from your account piling up in a short time span if you’ve gone on a shopping spree and signed up for several BNPL plans at once,” Rathner noted. Schulz stressed that this could get complicated for you financially depending on your budget.
0% offers from retail stores can be helpful for large purchases
Co-branded credit cards from retail establishments can provide customers with advantageous perks like discounts and first access to sales, particularly during the holidays.
However, compared to standard credit cards, they typically have far higher interest rates: APRs on retail cards averaged a record-breaking 28.93%, according to recent analysis from Bankrate. By making monthly full payments on their balance, customers can avoid incurring interest, according to Rathner.
Additionally, “deferred” or zero interest promotions are frequently offered on retail credit card accounts, especially those that are recently opened. According to Schulz, a retail card with “deferred interest” or 0% interest can allow you to pay off a larger purchase over the course of six to twelve months.
It will be crucial, nevertheless, to settle the balance before the time runs out. Rathner cautioned that if you don’t, you’ll not only be penalized with interest on the outstanding amount, but you’ll also be charged interest on the original purchase price.
How retail cards and BNPLs might impact your credit
For cardholders, holiday debt can be particularly thorny. According to a survey conducted by NerdWallet in August of last year, 31% of Americans who used credit cards for holiday shopping had not paid them off.
People still intend to use credit cards to pay for their holiday expenditures, though. In fact, according to credit agency Equifax, applications for retail credit cards actually always reach their peak in November and December of each year.