Should You Ever Use Buy Now Pay Later?

If you shop online, you've seen a Buy Now, Pay Later (BNPL) offer during checkout. These payment plans let you divide a purchase into smaller installments, often with the promise of zero interest if payments are made on time. It's an attractive offer if you want payment flexibility or if you don't want to pay the full amount up front.

However, BNPL isn't always as simple as it appears. While BNPL be helpful in certain situations, it can also lead to unnecessary debt or financial stress if used carelessly. Understanding how BNPL works and when to use and not use these offers can help you avoid costly mistakes.

Why BNPL Attracts Many People

By design, BNPL is easy to sign up for and easy to use. The appeal of being able to buy something today and then pay for it over time has immediate appeal. 

It's even more appealing when "in the moment" the BNPL can make a difficult purchase decision seem easy. Roughly 25% of Americans are living paycheck to paycheck. That means their budgets are tight.  And, thus, seeing a button at checkout to get an affordable payment plan can seem like a lifesaver. Many people are using these plans for day-to-day essentials like groceries, gas, medical expenses, and utility bills, according to a Data for Progress survey. 

Many BNPL plans advertise no interest for the pay-in-four payment option. That usually means you make a down payment when you sign up. After that, you have to make three more equal payments every two weeks. And if you do so, the purchase is paid off without interest due. But, like many things in life, the devil is in the details. 

If you don't make the payments on time, it can lead to fees, added interest and even collections. And thus, the down side of the ease of making a bad BNPL decision.

What Many Borrowers Don’t Think About

BNPL can be dangerous to your finances and create an ongoing cycle of struggling to make payments and avoid fees and charges. The "easy borrowing" seems easy, but when it comes time to pay, the cascading payment struggles may make tough financial situations even worse.  In addition to missing one BNPL payment, making another BNPL purchase can add to the ongoing struggle, especially for people living paycheck to paycheck. 

Unless you’re working on fixing the problem, whether that’s high expenses or a low income, the BNPL plan is just a band aid on a bigger issue. First, you use it for the groceries. Then you’re taking out more for other expenses. LendingTree found that more than half of users relied on these plans to get by. And others are using the plans for impulse purchases that otherwise wouldn't happen, adding to financial struggles overall.

Almost 35% of users missed at least one payment last year, according to the Urban Institute. Missing payments lead to late fees and interest charges, adding to the stress and financial burden over time. That’s bad news for your credit and for your ongoing ability to manage daily finances. 

When Does Using BNPL Make Sense?

From my experience talking to many people who’ve dealt with debt, I’m only comfortable recommending BNPL when all of the following factors apply to you and your BNPL decision:

• 1. Urgent need. BNPL can make an impulse spending problem worse. But if it’s a necessary expense, you could justify using BNPL. I’d consider it for things like an emergency dental bill. But that’s after you’ve considered other practical options. Just don’t get in the habit of using the plans to cover gaps between paychecks or everyday bills. 
• 2. Little cost. It’s best to stick with the interest-free options with four payments. If the plan involves interest, it should be much lower than a credit card’s. This means you’ll need to do some math to know how much you’re paying for convenient financing. The numbers might show that you’re better off using a personal loan or something else.
• 3. Clear repayment plan. This is a big one that requires checking your budget. Only use the plan if making the payments will be no problem. Then, only pay them using your bank account or debit card. While the plans often allow it, paying by credit card can just put you in a deeper hole. Make sure to use autopay too.
• 4. Little other debt. Many people view BNPL plans differently from regular debt, but it’s still a balance you owe somebody. If you’re already financially strained, adding BNPL is probably a bad idea. That’s yet another payment to juggle. You don’t want to pay late fees or damage your credit, so this is important. 

When To Avoid Using BNPL

These plans can be dangerous for anybody, but I’d especially discourage using one if:

• You’re impulsive. Even though I budget, I’m still guilty of impulsively buying things I want to have. It’s human nature for most of us. But borrowing money for impulse purchases is, most often, a bad idea. I recommend staying away from BNPL plans altogether if you think you might impulse shop.
• You’re already struggling. If you’re struggling with bills, I don’t recommend adding BNPL to the problem. I don’t recommend it if you’re deep in debt or worried you’ll lose your job either. Those situations are a recipe for potential missed payments and worse financial stress if you throw in a BNPL plan. Stabilize your situation instead.
• It’s at a high cost. Even if you’re financially well off, I don’t suggest a high-interest or long-term BNPL plan. There are better and cheaper options in those situations.
• You want to build credit. Whether BNPL lenders report your payments varies by company. Some don’t report the short interest-free plans, so check. Still, I don’t think you should turn to BNPL solely to improve your credit. I’d use a secured credit card or have a family member make me an authorized user in that case.
• You want protections. Disputing transactions and returning items can be harder with these plans, as the Consumer Financial Protection Bureau cautions. Plus, you usually won’t get benefits like extended warranties and return periods. Those have helped me with multiple purchases on my AMEX over the years.

Other Options That You Should Consider

There are always options to BNPL.  Some are more realistic than others, but you should aways weigh your options before committing to a BNPL purchase.

• Cash is best whenever it’s practical. You won’t have to worry about late payments or potential costs. And cash forces you to stop and consider if that immediate purchase is going to negatively impact other things you may have to purchase in the near term. Cash also helps with budgeting.  By sticking to a monthly spend limit, you are more likely to be able to contribute to a savings plan each month. 
• Borrowing. I think a credit card or personal loan may be better. I’ve had luck using 0% interest card offers before. If you do it right, you’ll get flexibility and save on interest for many months. If you need years to pay off something, a personal loan is worth considering. Those have cheaper rates than credit cards plus predictable payments. 

Whatever option you decide, I encourage looking at the whole picture. Anything you borrow can become a burden for a long time. So, avoid borrowing when you can. Also, make sure nothing will keep you from making on-time payments.

FAQs

Are BNPL plans actually free or not?

Some companies offer interest-free BNPL plans if you can repay it quickly. Others charge interest for different terms, and late fees can be added on top of that.

How many BNPL plans can I have?

There’s not usually a set limit if you mean across BNPL companies. Individual companies might limit you to a few plans or spending limit. Even if you’re allowed, though, be careful. You don’t want to overextend yourself.

What if I fall behind on BNPL plan payments?

You might owe a late fee or have the account frozen. If the lender reports the missed payment, your credit score might drop. A debt collector might come after the money after a while.

Other Articles of Interest:

Make sure to check out other great articles about money management and ways to save, including:

Is Paying Off Debt Better Than Investing

How To Save $5,000 For An Emergency Fund

25 Ways To Save $100 This Month Without Feeling It

The Credit Card Mistakes That Cost Americans Billions

Sources:

https://www.consumerfinance.gov/ask-cfpb/what-is-a-buy-now-pay-later-bnpl-loan-en-2119/ 

https://www.consumerfinance.gov/ask-cfpb/what-happens-if-i-cant-pay-back-a-buy-now-pay-later-bnpl-loan-en-2116/ 

https://dfpi.ca.gov/news/insights/buy-now-pay-later-what-consumers-need-to-know/ 

https://protectborrowers.org/how-bnpl-lenders-are-racing-to-put-a-loan-in-every-cart/ 

https://www.nyc.gov/site/dca/consumers/Buy-Now-Pay-Later-Tips.page 

https://institute.bankofamerica.com/content/dam/economic-insights/paycheck-to-paycheck.pdf 

https://www.urban.org/research/publication/many-families-rely-credit-and-savings-afford-groceries 

https://www.sdfcu.org/articles-personal-finance-alternatives-buy-now-pay-later-loans 

https://www.federalreserve.gov/releases/g19/current/ 

https://www.lendingtree.com/personal/buy-now-pay-later-loan-statistics/ 

https://www.advanceamerica.net/money-saving-tips/credit/do-bnpl-companies-report-to-credit-bureaus

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