The Only Buy Now Pay Later Plan You Should Use

You may be offered a credit card that allows you to make installment payments. Learn what that means.

If you're not familiar with the phrase Buy Now, Pay Later, it describes a type of credit plan that is becoming very popular with American consumers. If you shop QVC and use their "6 easy payments" plans for purchases, that's an example of a BNPL plan. It works simply and beautifully. If you qualify for the QVC credit card it is managed by Synchrony Bank. And Synchrony Bank is the king of BNPL plans. They also offer the only one I think is really of any value.
Millions of families use BNPL plans every year. Have you ever bought furniture on installment? That's a BNPL plan. If you were issued a card by the retailer through a third-party bank chances are it was from Synchrony Bank.

Synchrony started life as GE Financial Services. Millions of people who once bought furniture or auto loans with help from GE Financial should remember them. If you were able to keep up payments then you never heard from their collections department. If you did, you were one of many who went through that awkward and embarrassing process.

Every Loan Is a Type of BNPL Plan, But ...

Whether you're financing a $1 billion construction project or paying for a gourmet food item from a TV shopping channel, there is one major difference between the BNPL plans directed at low income consumers and all other types of long-term financing.

To draw in low income purchasers, BNPL plans must cut as many costs as possible. The easiest way to do that is for the finance company to offer a 0-interest loan. You typically must make a minimum purchase of $200 or more to qualify for the 0-interest loan.

If you repay the loan within the terms of the agreement - typically 6 months, 12 months, or in some cases 2 years - you pay no interest on the loan. If you don't pay the loan off by the deadline then you must pay ALL of the interest that would have been incurred during a normal loan for the entire period. And sadly these BNPL loans use interest rates that start above 20% and climb higher, depending on how bad your credit is.

But the BNPL plans don't make their money just by praying consumers miss their final 0-interest loan payments. They add a small percentage fee on to every purchase that qualifies for 0-interest loan. In other words, the cost of the loan is built into the purchase price.

This is a fixed fee amount. As long as you pay off the loan on time you won't pay anything more for it. Fees range from 3% to 6% of purchase price. They may be higher in some special cases.

So if you pay off the loan on time it's a very low-interest loan, even for someone with horribly bad credit.

But if you miss a payment then you're not only paying 20%+ interest on the original purchase price but also on the finance charge you agreed to originally. These missed payments can double the cost of your purchase over night.

The Problem with Shopping Channels' BNPL Plans

Companies like QVC (which also owns HSN) count on customer loyalty. They want you to keep buying products.

To get you in the door they run 24/7 infomercials about every kind of product you can imagine. And they have lovely and gracious hosts who entertain the audience. Who doesn't love In the Kitchen with David? His Happy Dance is legendary and I admit I enjoy watching him interact with his guests - who are all pitching products.

Every time you order something through a BNPL plan with staggered or "brokered" payments, you're agreeing to let the company add a new charge to your account every month until the full purchase price agreed to has been charged.

This makes it easy to order a $180 item because your first month's charge is only $30. You'll be charged another $30 in the 2nd month.

If you paid off the entire balance of your card the first month you'll be fine. But as you order more items more charges are added to your account on a monthly basis.

I had a friend who found herself facing $300 in new monthly charges every month. Her balance ran up to thousands of dollars. Her husband finally stepped in and took out a personal loan to get a lower interest rate on all those charges.

The personal loan's interest was much more than the 3% service charge the BNPL plan was levying.

I've Only Found One BNPL Plan I Want to Use

This plan is offered by Synchrony Bank and it's every bit as expensive (if you miss the final 0-interest payment) as any other plan.

It's called Care Credit and it's designed to help low income consumers (and anyone else who doesn't want to pay full fees up front) manage personal and veterinarian health expenses.

I learned about Care Credit from my veterinarian when I had to have our two dogs' teeth cleaned. We were looking at nearly a $1000 bill!

We easily qualified for Care Credit and were able to pay off the bill in 6 months. Thanks to Care Credit we were able to finance our dogs' important health expense.

You might wonder why we don't pay for pet insurance, which is supposed to cover these kinds of expenses. Unfortunately pet insurance becomes too expensive for dogs over 7 years of age. Even if you dog is of a breed that can live 15 years or longer pet insurance is very expensive.

We found the Care Credit plan worked better for us, and we accepted the 3% service fee that Synchrony Bank adds to the charges.

While it makes health care more expensive by at least 3%, the plan gives us time to cover emergency medical and veterinary expenses.

We only use it for emergencies and large health care expenses.

I wish we could finance all medical expenses this way but Care Credit is not a general purpose card like Mastercard or Visa. It isn't even like a Health Savings Account. It's a consumer financial product but it's a much better alternative to borrowing money from a payday loan store.