Offering payment plans is generally a strategic move to boost sales for high-ticket items, increase customer accessibility, and improve cash flow, as 76% of consumers are more likely to complete purchases with flexible options. It builds trust and encourages larger, or more frequent, purchases.
We'll look at four dangers to consider before making a buy now, pay later purchase.
Whether you opt for a BNPL provider or use your own customer payment plan template, it's rarely a bad idea to give your customers more flexibility. This type of instalment agreement can increase customer satisfaction and goodwill, encouraging your customers to make more purchases over time.
Making payments, while it does lessen your monthly burden, (or whatever your installments are set to be, quarterly, etc.), means paying interest or other surcharges. Paying in full, if you can financially afford to, saves you money in the long run.
Being able to take home a purchase without paying for it immediately is extremely attractive to a lot of consumers. People are more likely to buy something if they can pay for it in installments.
If you make every BNPL payment on time, it may help you build a positive history. If you miss payments, even small ones, it could lower your score just like a late credit card bill. If you open multiple BNPL accounts quickly, it may look like risky borrowing behavior.
So, here are 6 downsides to installment plans.
The best way to pay off debt involves choosing a strategy like the Debt Avalanche (highest interest first for savings) or Debt Snowball (smallest balance first for motivation), making more than minimum payments, cutting expenses to free up cash, and potentially using balance transfers or consolidation loans if your credit is good, all while tracking spending and building a small emergency fund first.
What to do if a customer doesn't pay
Alternative ways to phrase upfront payment terms: Deposit before work begins: "A [percentage]% deposit is required before work starts. The remaining balance will be invoiced upon completion and is due within [X] days."
40% for essentials ensures you handle your basics—rent, groceries, bills—without stress. 30% for savings helps you build a cushion for future plans or emergencies. 30% for fun lets you enjoy year-end parties and splurges guilt-free.
Debit cards are a step above cash in terms of security, but are still a relatively risky payment method. Debit cards could leave you liable for funds lost to fraud, provide criminals direct access to your bank accounts, expose you to overdraft fees and risk tying up your money in hold charges.
Potential credit score damage
So, while the on-time payments don't always help your credit, the late ones can hurt it. That's a problem if you're trying to qualify for a mortgage, refinance a car loan or consolidate debt. All it takes is a few missed BNPL installments to quietly undermine your larger financial goals.
Those with a 640 or higher credit score are likely to find a number of options for a $10,000 personal loan; those with higher scores may have more options as well as more favorable terms.
As with any other loan or debt, be sure that you're able to pay back the amount in full before signing up for a BNPL loan. The plans can help your credit if you pay on time. But, they can also hurt your score if you miss payments and end up racking up more debt in late fees and interest.
It's always in your best interest to pay in full as soon as you can to minimize the additional charges.
Yes, you can likely get a $50,000 loan with a 700 credit score, as this falls into the "good" credit range (670-739) that unlocks better rates, but approval also hinges on your income, debt-to-income (DTI) ratio (ideally below 36%), and overall credit history, with lenders looking for stability and repayment ability, so prequalifying with multiple lenders helps compare terms.