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Buy now, pay later (BNPL) services typically offer short-term loans that you can pay back with no interest or fees. Some may offer more flexible repayment terms but may charge you for the service.
While BNPL services allow you to break up your purchases into installments, spreading out the cost of your holiday shopping, they can still be costly, especially if you use them on multiple purchases.
Pros and Cons of Buy Now, Pay Later
BNPL plans offer some upsides for consumers, but they also carry potential risks. Understanding how they work can make it easier to determine whether using one is the right move for you.
- Convenient: In many cases, retailers allow you to use a BNPL plan simply by choosing it as your payment method at checkout. While some require a credit check, it's often a soft inquiry, which won't impact your credit scores. With instant approval, you don't have to apply for a personal loan or credit card and wait to get the funds.
- Splits up the cost: Many popular BNPL services allow you to split up your transaction into four equal installments, which you'll pay over the course of six weeks—that's one installment on the date of the purchase, then three more in two-week increments. If you want to purchase an expensive gift but don't have enough cash on hand, a BNPL plan can give you more time to cover the cost.
- Can be inexpensive: Traditional BNPL services that offer short-term payment plans typically don't charge interest or fees.
- No credit check: With standard BNPL providers, you don't need to worry about a hard credit check. In contrast, applying for a personal loan or a credit card will typically result in a hard inquiry.
- Can cost money: Some BNPL services may charge a late fee if you miss a payment, and if you decide to make your payments with a credit card, you could be charged interest on the card if you don't pay your balance in full. Additionally, some BNPL services offer longer repayment terms, but they may charge interest, similar to a personal loan.
- Easy to overextend yourself: Using a BNPL plan for an occasional purchase may be easy to manage. But the more you use them, the harder it can be to get a full picture of the total cost of your transactions. If you're not careful, you could end up in debt anyway.
- Returns can be challenging: The days after Christmas and New Year's are the biggest days of the year for returns. If you used a BNPL service, though, you won't get a refund directly from the retailer. Instead, it'll refund the BNPL service provider, which will, in turn, refund you. While you're waiting for that to complete, you'll need to continue making payments. And if the retailer only offers store credit, you'll still need to pay off your BNPL loan.
- No rewards: If you have a rewards credit card, you may be able to take advantage of your card's grace period—giving you time to pay off a purchase—and also earn cash back, points or miles on the purchase. BNPL providers, on the other hand, don't offer rewards. And while you can often make your BNPL payments with a credit card, you may earn less rewards.
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Should I Use BNPL for Holiday Shopping?
The decision of whether or not to use BNPL services to pay for holiday purchases depends on your situation. More specifically, here are some scenarios where it could make sense to use BNPL:
- You don't have enough cash to pay for an item, and there's a fee- and interest-free BNPL option.
- You can afford to pay off the purchase within the repayment period.
- You're not planning on using BNPL to pay for multiple purchases.
- You have an overall budget for your holiday shopping to avoid overextending yourself.
- You don't already have high-interest credit card debt.
In contrast, here are some situations where it might not make sense to use BNPL for holiday shopping:
- Your budget is tight, and repayment will be difficult.
- You're thinking about using BNPL for several holiday-related purchases.
- You have high-interest credit card debt.
- The item you want to purchase only offers long-term BNPL plans that charge interest.
- You don't have a budget for your holiday expenses.
Alternatives to BNPL This Holiday Season
Before you decide to use a BNPL service to make holiday purchases, it's important to consider all of your options. Here are some potential alternatives to keep in mind:
- Holiday fund: While it might not help this year, consider setting up a sinking fund and contributing a certain amount each month in a savings account specifically for holiday expenses. To determine how much to save, create a budget for this year or look at last year's expenses, then divide that total by 12.
- Introductory 0% APR credit cards: If you have good credit, you may qualify for an intro 0% APR credit card. These cards allow new cardholders to make purchases and pay them off interest-free over a period ranging from six to 21 months. Some also offer welcome bonuses and rewards on your purchases.
- Credit card installment plans: Some of the major credit card issuers now offer installment plans, allowing you to break up larger purchases over a longer period of time. These plans often charge a fixed monthly fee instead of interest, and some card issuers may even waive the fee for certain customers during the holiday season.
- Cut your costs: To make holiday shopping more affordable, look for opportunities to cut your costs. This may include spending extra time shopping for deals, giving homemade gifts, offering experiential gifts instead of items and more.
The Bottom Line
BNPL plans can make holiday shopping appear to be more affordable, and if you use them responsibly, they can help you manage your costs at an expensive time of the year. However, if you aren't careful, they can be costly and result in overspending.
As you consider BNPL and other options, check your credit score to get an idea of what your credit health looks like, then focus on options that work for your situation.