Managing Your Money

When “Buy Now, Pay Later” turns into “Buy Now, Pay Forever”

When “Buy Now, Pay Later” turns into “Buy Now, Pay Forever”

“Buy now, pay later” (BNPL) sounds ideal as a payment method – you get to enjoy that coveted bauble now without worrying about saving up for the whole amount, which can be harder than ever as inflation soars. And on the surface, it seems like a responsible way to purchase an item interest-free – if, that is, you make your payments on time.

But that’s a big if — while 30% of consumers1 said they were considering a BNPL loan in the near future, more than an astonishing 40% say they have had to make at least one late payment when using this payment method.

That means the $50 sale sweater you had your eye on could cost you big bucks over time. Here is everything you need to know about BNPL to decide if it’s right for you.

What is BNPL?

BNPL apps have quickly risen in popularity, with U.S. transactions expected to reach $75.6 billion in 2022, a 77.3% year-over-year increase, according to Insider Intelligence.2 This payment method allows you to split the cost of the payment into a set number of equal parts – often four. While you pay the first part as you make your purchase, the other installment payments are made over a fixed period of time, usually bi-monthly.

The payment method is most commonly found on websites, where you’ll be presented the option at checkout.

If you make your payments according to the terms, you owe no interest. If you are late with your payment, you could be socked with late fees or have your bill turned over to a debt collector, which can mar your credit score. It’s important to make sure you understand the policies of the specific BNPL company before buying so there are no surprises later on.

When BNPL might be right for you

BNPL does have a number of benefits – chief among them access to “credit” without actually incurring charges, provided you use it as it’s intended. Here’s why it can be a useful method to pay for some items:

  • Unlike a credit card, interest doesn’t accrue over the month; if you pay off these obligations in full on the recommended schedule, you’ll owe no more than the purchase price.
  • With interest rates rising, credit card interest may climb even higher, making credit a potentially riskier way to pay for something you can’t afford all at once. That can make BNPL a more affordable option assuming the obligation is paid off on schedule.
  • Many consumers are unable to get a credit card because of past credit blemishes, and this offers an opportunity to buy “on credit.” For certain purchases that can be a savvy move, such as taking advantage of a one-time sale on an item you need.

Why BNPL might not be the best choice

However, when used cavalierly, BNPL can get you in hot credit water. Here are some of the drawbacks to consider:

  • Life can get in the way; it’s easy to forget your obligations and be strapped when the payment comes due. The potential is even higher if you’ve used BNPL with multiple retailers or providers, making it more likely you could be blindsided by the total when presented with your monthly bills. 
  • It’s all too easy to click the button at checkout for something you want but don’t need, yet making a BNPL purchase on a whim could end up costing you far more over the future if you end up missing a payment.
  • BNPL doesn’t build credit like a real credit card would, which can become a problem in the future when you’re trying to leverage a high credit score to get appealing terms on a loan or mortgage.
  • BNPL doesn’t provide the protection of a traditional credit card, which means it can be more difficult to report a problem with delivery or secure a refund.

Should I Use BNPL?

There are times that BNPL can be a smart way to essentially borrow “free” money to pay for something you need that may otherwise be unavailable later once you’ve saved up, like an airplane ticket or a gift. Just make sure it’s something of lasting value so you’re not still paying off a temporary purchase, say, pricy cosmetics, long after they’re gone.

You should only use this payment option if you have a plan to pay it off – you might even designate a part of your paycheck each month to put directly into a savings account earmarked for these purchases. Or better yet, use that account to save up for something before you make it – no BNPL needed, which will give you the peace of mind the purchase fits into your financial goals.

1. Insider Intelligence. “US BNPL value will reach $75.60 billion this year.” June 16, 2022.

2. Lending Tree. “LendingTree Buy Now, Pay Later Tracker and Statistics in 2022.” July 27, 2022.

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