Money Smarts Blog


Buy now, pay later? Are online installment plans worth it?

Mar 29, 2021 || Kerri Wells, Product Manager, Card Portfolio

hand holding money
Full disclosure, we’re not endorsing any of these services below, but want you to be aware of what’s out there. Whatever you decide, make sure you read the terms and conditions, and understand the penalties before you move forward. Still unsure? Schedule a financial health check-up with us and we’ll figure it out together.

Installment plans aren’t new. For those who recall, Kmart was the king of layaway (the ability to buy goods and pay for them over several weeks) at Christmas. Next to the “Blue Light Special” it gave a lot of shoppers the means to afford gifts at the holidays. 

Fast forward to 2021, and companies such as Affirm, AfterPay, Klarna, PayPal, Quad Pay and others offer this buy-now, pay-later system by giving you micro installment loans online. Generally, these services are interest-free, but if you miss a payment, you’ll be hit with finance charges or late fees (for example, AfterPay charges an initial $10 late fee, and a further $7 if the payment remains unpaid 7 days after the due date) . Below are the pros and cons to these alternative financing options and how to use them.

What are installment services?
Mini installment plans act like microloans for everyday purchases, like clothes, makeup, electronics, and gym equipment (cough, cough, Peloton). Affirm, for example, also supports unexpected purchases, like car repairs. But unlike car or home loans, which you typically pay off over the course of many years, products and services financed through these services are typically paid off in a few weeks or months.

Pro-tip: If it’s something you want (but don’t need) and can’t afford it out right, wait until you’ve saved up the full purchase price.

How do they work?
Each online installment plan offers different setups, but in general: You buy your item now by selecting the plan at checkout (with a qualifying retailer), creating an account and completing your purchase. You'll usually pay the first installment and the next one will come out about two weeks later. Otherwise, the product or service will arrive on time, just like it would if you paid in full at checkout.

Pro-tip: To take advantage of these interest-free installment plans, the retailer you're shopping with needs to support them. Keep an eye out for the installment service's logo when you're viewing a product. This lets you know the partnership exists and you can select a payment plan at checkout. 

Should I use these services?
As mentioned above, read the terms and conditions before signing up. It’s also good to weigh the pros and cons:

Pros
  • You can make a plan to pay over time to help you budget: If you have things you need or want to buy, you're not obligated to pay for it, in full, at checkout.
  • You don't need great credit to use it: Most services do a soft credit check, which won't hurt your credit score.
  • It's simpler than a loan or credit card: If you've had trouble with credit cards or don't like using them, this is an easier method than applying for a credit card or personal loan.

Cons
  • You aren’t actually spending less: If you really want that $400 couch, seeing payments broken up into $100 every other week, tricks you into believing you're paying less for an item. In reality, you're still paying the same amount and you're borrowing money to do it.
  • You might not get approved for the full amount: Even if you don't have a strong credit history, it's still a factor in determining if you're eligible for the full amount requested. There's a chance you might not get approved for the full amount you're requesting. 
  • Not all purchases are eligible: Even if the retailer is a partner, not all purchases qualify. For instance, AfterPay has a $35 minimum installment payment, so if your order equals less than that, it's not eligible.
  • It's still a loan: Remember you're still taking out a loan, even if you pay it off sooner than you would a traditional loan. Not paying on time could result in interest fees, late payment fees or not being able to use the service in the future.

Installment plan services is one way to finance large purchases over a short period of time, if you choose a structure that works with your spending habits. Although IHMVCU doesn’t offer online installment plans, you can use your IHMVCU debit or credit card to complete your purchases. 

Pro-tip: With the IHMVCU Rewards Card, you will earn 1% cash back each time you make a payment with these services.

Just remember, with online installment plans you're still on the hook for paying your bill in full. If you don't think you'll be able to afford payments, you may want to consider another payment method or waiting until you have cash on hand to make your purchase.

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By continuing you will be leaving the main IHMVCU website. Even though you may have clicked on a link that takes you to another company's site that we have partnered with, we are not responsible for the accuracy, security, or content of their website. We encourage you to view privacy and security disclosures of all websites you visit.

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