Money Management

Buy now, pay later (BNPL) plans make it easy to split up a purchase into several installments with no interest. Find out how you really pay for BNPL. 

If you’re short on cash this holiday season, you may be tempted to use a buy now, pay later plan. These plans let you split a purchase up into four interest-free installment payments that you typically make biweekly. Most buy now, pay later plans don’t require a credit check.

But here’s the dark side of buy now, pay later (BNPL) plans: Retailers love these plans because they know you’re likely to spend more.

The truth about buy now, pay later plans

When you use a buy now, pay later service like Klarna or Afterpay, you’re technically getting an installment loan. But instead of making money off the interest you pay — which is what happens with a traditional loan — BNPL lenders earn the bulk of their payments from merchant fees. Shopify reports that these fees typically range from 2% to 8% of overall transaction costs.

Retailers are happy to foot the bill because they know that customers spend more when they use BNPL. One study found that 70% of customers admitted to spending more when they paid with buy now, pay later. Research also shows that BNPL makes you more likely to make a purchase you’re on the fence about. When you do make a purchase, the amount you spend is often higher.

In a paper called “Buy Now, Pay (Pain) Later,” researchers from the University of Washington, University of California-Irvine, and Singapore Management University, offer several explanations for why overspending is so prevalent with buy now, pay later plans:

Easy access to credit is generally associated with people spending more.BNPL lenders are more willing to extend credit to risky borrowers because they earn commissions from retailers.Since BNPL services rarely report to credit bureaus, customers can often borrow more than they can afford.

The same research found that customer usage of BNPL services is associated with an increase in overdraft fees, credit card interest rates, and late fees.

That finding is especially alarming because customers with shaky finances are more likely to use BNPL. The New York Survey of Consumer Expectations Credit Access Survey found that 43% of BNPL customers have credit scores of 620 or lower, while 37% reported being at least 30 days delinquent on a bill at some point in the last year.

Using buy now, pay later can be especially appealing to customers with bad credit because you can typically get approved without a hard inquiry to your credit report. But keep in mind that these plans won’t help you build credit. Whether you’re building credit from scratch or trying to improve a bad score, you’ll need a credit card or loan that reports your payments to the credit bureaus.

While BNPL providers won’t report your on-time payments to the bureaus, some do report missed payments. This means that BNPL is unlikely to help your credit score, but it could hurt your credit score.

When using buy now, pay later makes sense

Buy now, pay later comes with real risks, but it’s possible to use these plans without getting buried in debt or hit with fees. If you’re going to use a BNPL service, follow these tips to avoid risking your personal finances:

Only use BNPL for purchases you already planned to make.Make sure you understand when each payment is due and that you’ll have sufficient cash in your bank account to cover the payment.Read the details of the payment plan so you’re clear on whether you’ll be charged interest, what happens if you’re late on a payment, and whether the service reports to the credit bureaus.

Finally, consider the alternatives. If you’re eligible for a 0% APR credit card, this is often a better option than BNPL. You’ll get the zero-interest perk that many BNPLs offer, plus you’ll face fewer headaches if you need to make a return or dispute a charge.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Buying a fixer-upper can save you a ton of money, or it can break you slowly. Here are some surprises to be aware of when shopping for a fixer home. 

I’ve spent a lot of time around fixer-upper houses both as a professional and living in one myself. My house was abandoned for about four years, it was being eaten by the landscaping, and it was a reckless nuisance to the neighbors. I’m sorry to say that things haven’t improved much in the last eight years (that’s a joke).

Between all the fixer-uppers I saw as a Realtor, the ones I worked on as a contractor, and the one I live in now, I have some stories. There’s a lot that can go wrong with fixer-uppers, and a lot of the stories come down to owners not being fully prepared for what it means to buy a home that needs so much work. Let’s talk about some little known surprises that can turn your project home into a money pit.

Surprise No. 1: Simply not budgeting

This one doesn’t really come as a surprise until you’re too deep in and realize you’ve got 10 gallons of house to fix with five gallons worth of funding. Sadly, it happens far too often to people who really have a vision and a lot of hope, but terrible planning skills.

If you’re gonna DIY your home, you’ve also got to DIY your construction plan. You can’t simply buy a light fixture because you like it; it has to be within your lighting budget. Tour home improvement stores, build your budget, and stick to it. You have the advantage of time when it comes to those fancy fixtures you like — you can always wait for a sale if that will get them in range.

There’s a way to head this one off at the pass, and that’s by making a budget from day one, just like a professional remodeler would do, as well as figuring extra in for the unforeseen (my dad always said to add about 20% to your materials costs’ estimate, and that hasn’t steered me wrong yet).

While you won’t necessarily need a budget to borrow against your home’s equity via one of the best mortgage lenders, you will need it to get successfully from one end of the project to the other.

Surprise No. 2: Water infiltration

Discovering a leak is one of the fastest ways to blow your fixer-upper project into a million tiny pieces. Although your home inspector would have checked for water in the common spots, like under sinks, under the house, and near appliances, they can’t always tell if there’s water running off your roof and into the wall, for example.

Your insurance won’t cover this kind of repair unless it’s caused by a sudden storm ripping the roof off or an appliance exploding violently in the night, so probably, this one is on you. A second mortgage, like a home equity loan, can help cover the cost if the damage is extensive, but often these problems are a matter of doing the tedious work of tracking the leak down and sealing it.

RELATED: The Ascent’s Complete Guide to Mortgages

Case in point: I recently discovered a leak in a small section of wall in my kitchen coming in from the top of the window. The roof didn’t have an adequate drip edge, which allowed water to slip in behind the siding, eventually leading to water pooling on top of the window and seeping in. I fixed the source of the leak and the spot damage on the sheathing of my house, and then wrapped it with sheet foam and house wrap, just to be on the safe side.

It doesn’t leak anymore. But if I had let it go rather than acting promptly, that water could have destroyed the wall, filled my house with mold, and made my home less of a fixer-upper and more of teardown. All in all, the repair cost me about $700 in materials and a couple weekends of work — but I got a new hammer out of the deal, so it wasn’t all bad.

Surprise No. 3: Electrical mish-mash

Although fewer people are brave enough to do their own electrical work, it happens, and when you’re looking at fixer-uppers, it has already happened more than you might think. When you’re touring homes, watch for outdated electrical systems, since these can interfere with your ability to afford homeowners insurance, if you can get it at all.

My house had two fuse boxes when I bought it, and there were a couple of random breakers kind of next to them for added chaos. It was pretty obvious that I would have to upgrade the electrical system almost immediately, but often it’s your home inspector who finds the issues that are more serious.

Once electrical issues are located during a home inspection, your best bet is to negotiate with the seller to have them corrected immediately. According to Angi, it can cost up to $2,000 to replace a fuse box or upgrade your breaker panel to 200 amps (which is the modern standard for most homes). But rewiring may run between $500 and $4,500, depending on the difficulty and how extensive the issue is. This is why it’s a good idea to invite an electrician over to see your house during your inspection period and give you a quote if you even suspect you may have to redo the wiring.

Fixer-uppers are full of surprises

Along with potentially being full of mice or cockroaches, fixer-upper homes can also be full of the unknown for the people who buy them. Having a huge project can be fun in concept, but you have to be prepared for any and all eventualities. This includes a lot of really stressful surprises — including ones you create for yourself by not budgeting properly for the mission you’re about to undertake.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Kristi Waterworth has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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If you stay committed, you can save $3,000 in 2024. Find out what strategies could help ensure you reach your savings goal in the new year. 

As we near the end of 2023, you may be trying to decide what financial goals you want to tackle in 2024. Saving more money is a common financial goal for many people. With extra cash in the bank, you can feel more comfortable and be financially prepared for when an unexpected expense pops up. If you hope to save $3,000 in 2024, achieving your goal may be easier than you realize. I’ll share with you what steps you can take to reach your savings goal by year’s end.

Do this to make your savings goal more manageable

Saving $3,000 can sound intimidating, especially when you’re first getting started. If you’re feeling overwhelmed with the thought of saving that much money, finding a way to make your larger goal more manageable can be beneficial.

An easy way to do this is to calculate a smaller savings goal that will get you to your year-end goal. If you want to get into the habit of saving every month, setting aside $250 every month will get you to your savings goal by the end of 2024. That’s a more manageable number to focus on.

Keep your cash in an interest-earning bank account

Before you tackle your financial resolution, you should consider which bank account to store your extra cash in. Most checking accounts don’t earn interest, so there’s little benefit to keeping your savings in your primary checking account. Plus, you might get confused and accidentally spend your savings thinking it’s your regular spending money.

Instead, keeping your savings in a bank account that earns interest is smart. Opening one of the best high-yield savings accounts is an excellent option. As your money sits in the bank, you’ll earn interest. Every cent earned in interest is a win for your personal finances.

Automation can ensure you stay on top of your savings goal

Many people hope to save more money, but they get forgetful or spend all their money before they have a chance to save. Do either of these scenarios sound familiar to you? If you’re worried about falling behind on your savings goal, you should consider automating the savings process.

The best banking apps have built-in automation capabilities that let you automatically transfer money from your checking account to your savings account as often as you’d like. You can also enable automated transfers after logging into your account through your bank’s website.

This strategy can save you time and ensure you don’t get forgetful along the way. It’s easy to fall behind when life gets busy. I use automation to stay on track and it has proven effective.

Give your finances a fresh start

A new year is the perfect time to start making changes to improve your finances. Whether you want to pay off credit card debt, establish an emergency fund, or save up for a big financial goal like buying a home, it’s not too late to start. Taking the time now to determine your financial resolutions for 2024 is an excellent way to set yourself up for success before Jan. 1 arrives.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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This writer isn’t moving despite being able to take on more housing expenses now than when she bought her home. Find out why. 

My husband and I bought the home we live in today about 14 years ago. And as is the case for many people I know, in the course of 14 years, we’ve worked hard to grow our careers and increase our earnings.

At this point, my husband and I jointly earn about twice as much as we did when we first signed our mortgage. And if we wanted to, we could upgrade to a more expensive home. But here’s why we’re not doing that.

1. Buying a replacement home is too expensive right now

Not only are home prices elevated these days, but mortgage lenders are charging pretty high interest rates for home loans. And so while I can technically afford to buy a different home, doing so in the near term is likely to be a more expensive prospect than I’d like to take on.

Right now, my monthly payments are fairly affordable largely because I refinanced my mortgage to a low rate in 2020. In fact, I’ll share that I’m paying under 3% on my current loan, whereas if I were to sign a new mortgage today, I’d be looking at an average rate of a little over 7%. And it’s hard for me to think about giving up such a great rate and borrowing at a much higher rate instead.

2. There aren’t many replacement homes to choose from

I’m not the only homeowner sitting on a low mortgage rate and not wanting to give it up. Many people did what I did and refinanced their home loans when rates were ultra low. Because of this, there’s not a lot of real estate inventory to go around. And that holds true in my neck of the woods.

As such, if I were to try to buy a home today, I’d likely have to compromise on a number of the features I’d want. It’s not worth it for me to pay up for a new home and not get what I want.

3. I like to keep my housing costs low to allow for spending on other things

When my husband and I bought our home initially, we chose a house that was below the top end of our price range to give ourselves more financial flexibility. Even though we now earn a lot more than we did back then, we also have other expenses — namely, our three kids. So we need to reserve more of our earnings for things like food, clothing, and medical bills.

Also, doing things together as a family is important to us. So is allowing our kids to participate in different sports and activities that cost money.

And so another reason I’m staying where I am is to have the option to spend on other things and not wind up house poor. I wouldn’t, for example, want to have to tell my child they can’t try out for the baseball team because I can’t swing the cost of coaching and uniforms due to higher mortgage payments.

4. I’m reasonably happy where I am

No home is perfect, and there are aspects of mine that I’m less than happy with. For one thing, I could use a lot more storage than I currently have. And while there’s a decent amount of space between my house and the next one over, my ideal home would be on a large plot of land where I can barely see my closest neighbor.

Despite these shortcomings, my house is comfortable and serves my family’s needs. And there is such a thing as learning to be happy with what you have, even if it’s not your dream home per se.

Should you move once your income increases?

If your household income has risen since you purchased your home, you may be tempted to upgrade at some point. But before you do, consider not only the higher costs, but what you might be giving up.

Spending an extra $1,000 a month on housing may be something you can finally afford to do. But if it means having to pinch pennies in other areas, it may not be worth it.

In time, today’s tough housing market conditions are bound to ease. Inventory should eventually pick up, home prices should drop to some degree, and mortgage rates should fall below their current level. So buying a new home may not be as expensive a prospect down the line as it is today.

But if you’re looking at taking on higher costs all in, you’ll need to weigh the upside of a potentially more comfortable space against the downside of having less money for all of your other hobbies and goals.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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