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Buy Now and Pay Later This Holiday Season?

Nov. 18, 2014
Credit Card Basics, Credit Cards
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If you’re a QVC or HSN shopping devotee, you probably know you have the option to pay for many of your shopping-network purchases in monthly installments. But when it comes to holiday gifts, is it the best idea to buy now and pay later? Here are the benefits and the drawbacks.

Buy now and pay later: The benefits

HSN’s FlexPay and QVC’s Easy Pay programs both have the benefit of no fees or interest charges. Essentially, you’re getting a short-term, interest-free loan to buy gifts for the holidays. You’ll make your first payment when you order and subsequent payments every 30-31 days until your purchase is paid for — generally between two and six months. The price of the item, along with applicable taxes and shipping and handling, will be divided into equal installments.

This is helpful for holiday shoppers who didn’t plan ahead and need some time to pay off purchases, but don’t want to have revolving credit card debt. Keep in mind, though, that you will incur interest if you make these installment payments on your credit card and don’t pay off your plastic in full before your due date.

» MORE: How to pay off debt

Buy now and pay later: The drawbacks

While we encourage using credit cards to rack up rewards and build credit, the Nerds hate credit card debt. Buy now, pay later programs take the interest out of the equation, but you’re still carrying debt. If something bad were to happen to your finances between now and the end of your payment schedule — like a medical emergency or losing your job — you may struggle to pay off your purchase. As a general rule, you shouldn’t carry debt for unnecessary purchases like gifts. It’s not worth the risk.

If you’re going to use a buy now, pay later program, you should set up the payments to charge your credit card to take advantage of rewards. Rewards credit card typically give you between 1-2% back in cash or travel rewards on all purchases. It would be a shame to make the payments with a debit card and miss out on this benefit.

Using a credit card for your holiday shopping also gives you protections you might not receive by using a buy now, pay later program. Price protection reimburses you the sale difference if a better deal comes up on the item you purchased within a certain time frame, and purchase protection reimburses you the cost of a covered item that is lost or stolen in a specified time period. You may also benefit from the extended warranty coverage offered by many cards, which traditionally adds a year of coverage on top of your manufacturer’s warranty.

These perks may not be valid for purchases made on installment programs. For instance, price protection won’t be helpful when your transaction amount only accounts for a portion of your purchase, and purchase protection isn’t applicable for purchases that haven’t been paid in full. Check with your individual issuer to find out if you’re forfeiting these benefits by paying for your gifts in installment payments.

Bottom line: While buy now, pay later programs are great for getting a short-term, interest-free loan, they do put you in debt temporarily. These programs also may not come with the benefits of a credit card — like rewards and protection coverage. If you choose to buy now and pay later this holiday season, set up payments with your credit card to get rewards and don’t spend more than you can reasonably pay off in the allotted time.

Christmas presents image via Shutterstock