Buy now, pay later (BNPL) services can help you finance purchases over time, but you can incur fees if you miss payments. These fees can make your purchase more expensive than originally planned. It's important to use buy now, pay later services with a plan for how you will pay your installments before you click "buy."
Consider these pros and cons before using a buy now, pay later service.
Pros of Buy Now, Pay Later
It's no secret that buy now, pay later services have taken off in popularity. From 2019 to 2021, the number of BNPL loans from five popular providers increased by 970%, according to a Consumer Financial Protection Bureau report. People like the chance to pay on their own schedule, use the service for online or in-store purchases and get inexpensive or free financing. Some of the pros of using a buy now, pay later include:
Split Up Payments
The major benefit of BNPL services is that you can break up payments into smaller, more manageable amounts. When making a big purchase, you don't need to have all the cash in your pocket that day.
Most buy now, pay later services split up costs over several payments scheduled two to four weeks apart. This payment cadence often fits with biweekly pay schedules to help replenish your bank account before the next payment hits.
If you make your BNPL payments on time, you typically won't pay any interest. Getting 0% financing is a draw for most buy now, pay later users. If you're looking to break up payments without a service fee or any interest, a BNPL arrangement can work well.
Get Financing Without a Credit Check
Some buy now, pay later services do not check your credit before approving you. For those who are new to credit or rebuilding their credit, BNPL may offer an attainable financing option.
Cons of Buy Now, Pay Later
Just because it makes spending easier, buy now, pay later isn't necessarily safer for your finances. Using buy now, pay later services can open users up to financial risks that may not be worth the convenience in the end. Some BNPL cons include:
Fees and Interest
If you miss a BNPL payment, you may be charged late fees or interest on your unpaid balance. Depending on the amount charged by the BNPL lender and how these fees are structured, they can add up quickly.
Should you stop making payments altogether, buy now, pay later services can also turn your account over to a collection agency. Besides accruing more fees and interest during this timeframe, your credit score could also be put in danger.
Frequent, automatically scheduled payments could increase the potential for bank account overdrafts if you aren't careful.
If you set BNPL payments to draft from your checking account automatically, it's important to remember the schedule and make sure enough funds are in your account. Add these dates to your calendar and make sure you leave enough after each paycheck deposit to meet the next payment date so you avoid late payments.
Easy to Overextend Finances
One of the biggest dangers of using BNPL services is that it can be easy to overextend your finances. Only looking at the cost of each payment may make it difficult to register the full cost of the item. Especially when you make several purchases with buy now, pay later arrangements, bills can rack up—and be challenging to juggle.
Miss Out on Rewards
If you typically shop with a credit card but are considering using buy now, pay later for a purchase, remember that you'll forgo your rewards and other credit card benefits. BNPL services typically do not have rewards structured like credit cards, which can be a deterrent for shoppers who have a great rewards card already. You also won't get other credit card benefits, like purchase protection.
There are workarounds, like paying off your buy now, pay later bill with a credit card to get rewards points, but this may be overly complicated for some shoppers and could end up costing you more if you can't pay your full credit card bill.
Returns Can Be Difficult
If you need to return a BNPL purchase, you could be in for a wait and possibly a difficult process. Unlike making a purchase with a credit card, the merchant will return the funds (assuming the return is approved) to the BNPL lender. The lender then passes on the return to you. While you wait, you must still make payments according to your BNPL plan or face late fees and penalties. If the purchase involves a dispute, completing the return could take weeks or months.
If the merchant provides the return in cash or store credit, you'll need to continue making payments on your BNPL plan until the amount is paid in full.
Should You Use BNPL?
Whether or not you should use buy now, pay later depends on your personal financial situation and responsibility. To responsibly use buy now, pay later services, you should be prepared to:
- Make all payments on time to avoid fees.
- Keep enough funds in your bank account for automatic payments to avoid overdraft payments.
- Evaluate the full cost of purchases to avoid overextending.
If this sounds like it may be difficult for you, consider using another financing alternative that could fit your situation better.
Some alternatives to buy now, pay later that may fit your needs better include:
- Credit cards: Using traditional credit card financing can help you afford necessary purchases in a timeframe that works for your budget. If you can qualify for an introductory 0% interest card, you may have up to 21 months before you begin to owe interest. This can be the kind of breathing room needed for sudden, large purchases.
- Personal loan: Depending on the type of purchase you are making, you may be able to qualify for a loan. Typically this would apply to larger purchases over $1,000, as it is more difficult to find unsecured loans below this number. If you choose to use a personal loan, shop around for the most competitive interest rate. Rates on loans are often better than credit card interest rates.
- Store financing deals: Occasionally, you may be able to get financing directly from a store, either as a payment plan or a store credit card. Looking out for these deals when you are planning a purchase can help you get affordable payments.
- Delayed purchase: The safest option that avoids any possible interest or fees is to save up ahead of a purchase and pay in cash. When it is possible to delay a purchase, skipping buy now, pay later services may help you avoid difficult financial circumstances.
The Bottom Line
Like many financing options, buy now, pay later has pros and cons. Your personal financial situation will dictate whether or not it is a good idea to use. There may be alternative financing options that make more sense for you.
Some of these may be an intro 0% APR card or a high-yield savings account that rewards you for stashing cash while you save up for a big purchase. Whichever you choose, make sure to only use financing options that you can commit to paying on time and which won't lead to damaging your credit score.