Greater Nevada Credit Union aims to educate consumers about
Point of Sale Loan Programs Buy Now, Pay Later
RENO, NEVADA – The holiday shopping season is officially underway and as consumers look to shop for gifts for their friends and loved ones, there is a buying trend that experts in Greater Nevada hope to educate the community – the loans Buy now, pay later.
This type of loan, known as a point-of-sale (POS) loan, offers buyers the option to repay their purchases in bi-weekly or monthly installments over a period of time. Unlike credit cards, many Buy Now, Pay Later loans offer 0% interest and no late payment penalties.
“At first glance, this may seem like a pretty attractive option; especially if your online shopping cart is loaded with expensive items such as furniture, gifts, or housewares, ”said Marcus Wertz, director of loans at the Greater Nevada Credit Union. “However, it is very important to be aware of the impact of Buy Now, Pay Later loans on your credit score before deciding to use this option.”
According to Wertz, some Buy Now, Pay Later loans can affect consumer credit scores when you consider the five factors influencing FICO scores and how each is weighted.
Payment history (35%): payment history on time
Amounts owed (30%): how much credit and loans a person uses compared to how much they have, also known as the utilization rate
Length of credit history (15%): how long a person has had access to credit
New credit (10%): how often a person applies for and opens new accounts
Credit Composition (10%): The variety of credit products a person has, including credit cards, installment loans, finance company accounts, mortgages, auto loans, etc.
“Changes to each of these factors can have a negative or positive impact on your credit score,” Wertz said. “With point-of-sale loans, they can affect your credit score in a number of ways. “
The first is the payment history. If buyers make payments on time for their Buy Now, Pay Later loan, it could have a positive impact on their payment history. Otherwise, it can have a negative impact. Additionally, the length of credit history is affected because credit bureaus treat each purchase using a point-of-sale loan as a separate loan. Once consumers have made the payments, the loan ends. Having a series of quick loans like this can lower the average age of a person’s credit history and thus lower their credit rating. Another factor to consider is that these loans will reflect new credit – repeatedly applying for new Buy Now, Paying Later loans will also demonstrate frequent opening of new accounts and could adversely affect a person’s overall credit rating. Finally, the way the company that offers the Buy Now, Pay Later loan reports the use to the credit reporting agencies will also have an impact on a person’s credit rating.
A variety of companies offer point-of-sale loans, including popular providers like AfterPay, Affirm, and Klarna. Each handles the way they report user activity to major credit bureaus differently, which can make these loans even more confusing.
“It is crucial to make sure that you are clear on the terms and conditions of any Buy Now, Pay Later loan and that you understand the interest rate and repayment schedule,” Wertz said. “Managing finances during the holiday season can be very stressful for some people. The last thing they have to experience is an impact on their credit score after thinking about balancing their budget by spreading out their payments.
Wertz said that an alternative people should consider is a personal line of credit, which gives buyers immediate access to funds whenever they need it. Unlike a traditional lump sum loan, they don’t have to use the line of credit all at once, if at all. And, they only pay interest on what they use.
“Personal lines of credit can also help build a person’s credit rating,” he said. “When used responsibly, an open line of credit can positively impact personal credit scores by demonstrating longevity of the business and utilization ratio. “
Another option, especially if people are considering using a Buy Now, Pay Later loan for holiday purchases or some other event they couldn’t plan for, is to strategically save for that purchase. For example, a savings account like the Christmas Club of Greater Nevada will help customers save regularly throughout the year with automatic deposits. Then on November 1, they will receive the money they saved, plus the interest they earned.
For more information on loan types, credit scores, and more, visit GNCU’s Greater Financial Education Center.
The Greater Nevada Credit Union (GNCU) is headquartered in Carson City, Nevada, and has been helping Nevada residents meet their financial needs since 1949. The credit union serves more than 81,000 consumers and small businesses and has over $ 1.5 billion in assets. GNCU’s subsidiaries include Greater Nevada Mortgage, Greater Commercial Lending, and Greater Nevada Insurance. GNCU has consistently been recognized as the Top Financial Institution in many of its service areas and as one of the Reno / Tahoe Best Places to Work Awards as one of the Top Employers and is the USDA Lender of the Year. GNCU is also the title sponsor of Greater Nevada Field in Reno. For more information, call (800) 421-6674 or visit www.gncu.org.