Buy Now, Pay Later (BNPL) services have become quite popular in recent years as they have permeated numerous online shopping experiences as payment options. They are attractive to consumers because they provide a way to quickly make a purchase without having to pay for it right away. While they can be convenient at first, many people may find that this buying strategy can backfire and make their finances more complicated. Consider the following five points before you choose this checkout option.
You Can Form Unsustainable Spending Habits
Buy Now, Pay Later services can lead to unsustainable spending habits if you're not careful. It's about psychology. These services make expensive purchases feel cheaper. It can make a $500 purchase feel like no big deal when you can split it up into three or more payments. Retailers increasingly rely on this mentality to boost their sales, but you may find that you're spending more than you would otherwise when using these installment plans. You might even find yourself making purchases that you wouldn't have made at all. This can be problematic for your budget, especially if you're trying to save. If you have multiple BNPL plans running at the same time, they can really add up.
Good For You Money Founder Linda Ta Yonemoto explains in a CBS News article*, "BNPL makes consumers feel they can buy things they normally wouldn't and spend more than they typically would. It builds unsustainable spending habits. Unlike traditional credit, BNPL reduces the immediate pain of payment by splitting costs into more manageable chunks. Purchases may feel cheaper but using more than one BNPL service amplifies the risk. Since many companies still don't share spending information with competitors, overextending across several providers becomes dangerously easy.”
Late Fees Can Hurt
BNPL plans also mean potential late fees when you miss payments, and that can be easier to do if you're already struggling financially and have multiple plans with payments due on top of your other bills. Possible penalties for missed payments include late fees, payment rescheduling fees, and account suspension for repeated missed payments. Fees can stack up quickly, and you may find that you are paying more with penalties than what you saved in the short term by choosing the plan to begin with. Some services may even use aggressive collection tactics on delinquent accounts. Third-party collectors may apply additional fees or take legal action.
"Most people take on BNPL loans with the intention of making all their payments on time," says Emily Batdorf at Yahoo Finance.** "But sometimes, plans get disrupted. Some BNPL services charge late fees, ranging from Zip’s $7 fee to Sezzle’s $16.95 fee. These fees can be disproportionately high in relation to an item’s purchase price, especially for smaller purchases."
Debt Can Get Complicated
Overusing BNPL plans can make your debt obligations more complicated than if you were only using credit cards for purchases. Whereas all purchases on a credit card would appear on one statement, BNPL splits your obligations into separate plans with separate dates. Some take payments every two weeks while others every month. They don't all include reminders, and some providers withdraw funds automatically. If you use credit cards in addition to BNPL, that's more to keep track of and to pay back. If you are managing a tight budget or have irregular paychecks, this can be especially problematic. You might encounter accidental overdrafts, missed payments due to confusion, and unexpected withdrawals from underestimating how much you've committed to.
BNPL Can Impact Your Credit
Some consumers find BNPL attractive because the plans often don't require a hard credit check. That doesn't mean they won't impact your credit. Missed payments can be reported to credit bureaus. Longer-term BNPL plans can also appear on credit reports while debt sent to collections will almost certainly have a negative impact on your credit score. This can then affect your ability to get other financing, as well as insurance rates, rental applications, and more.
Returns and Refunds Can Be Complex
You may also find that returning an item or getting a refund can be more complex when you've bought something using BNPL. Payments may continue while a return is being processed. Refunds may take weeks to appear in your account. You may even be stuck paying the full plan if a retailer delays or disputes your return. Some providers won't adjust remaining payments until the merchant confirms the return.
This doesn’t mean that an occasional BNPL purchase is necessarily a major concern. The important thing is that you use these services responsibly and understand the potential consequences of not being responsible.
* https://www.cbsnews.com/news/how-buy-now-pay-later-can-wreck-your-budget-experts-say/