Most of us grew up in a time when layaway was a go to choice for buying items, especially when making larger purchases. If your stove breaks or you need your washing machine replaced, layaway was often the go-to decision.
But now there is something called Buy No Pay Later (BNPL). What’s the difference and should you do that instead?
What is the difference between layaway and BNPL?
Layaway (as it’s known now) originally came about in the 1930’s and is a process by which an individual can make a deposit and then subsequent payments on an item on a schedule, and is able to take the item home, once the item is fully paid for.
Buy Now Pay Later is a system by which the individual is financially assessed for a short term financing arrangement (through the store). There is a term set up for regular payments to be made, but once approved, the individual is immediately able to take the item home.
Often times, there may be an agreement that there is 0% interest, or for larger purchases a low interest rate for an agreed upon term.
Which is better?
Layaway is a tried and true method for making larger purchase. But this is often only advantageous when you know ahead of time that you’ll be making the purchase. For things like new furniture or home items that you want to ‘replace’ or upgrade, layaway is a terrific option. But for emergency purchases, it may not be the most convenient.
One advantage of layaway is that there is no interest rate on the amount of the item. When buying through BNPL or on credit card, there may be interest charged on the amount of the “loan”.
BNPL is an in-house short term loan, which may or may not have interest applied to it. A credit check may or may not have to be done at the time of the purchase. Consider the impact that a credit check will have on your credit score.
One advantage of BNPL is that once approved, the item can be taken home immediately.
What other options could I choose?
Cash. Cash is king of course and there is no interest that needs to be paid when paying cash. But for larger purposes, sometimes that isn’t an option.
Credit cards. Paying by credit card can be helpful, but keep in mind what your interest rate is. Other things to consider are making the payments. How much is going on your card? How long do you need to take to “pay it off”? You’re the one who decides how much to pay and when, but if you aren’t disciplined or have a high level of debt already, this may not be the best option for you.
How we pay for large purchases needs to be well-thought out and budgeted for. Knowing what your options are, acting strategically and guarding your hard-earned money is the best for all aspects of money management.
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