Buy Now, Pay Later: Too good to be true?

Buy now, pay later. Sounds great, right? The attraction of these services and plans is obvious: you can purchase something now and pay for it later, typically with installment payments over a set period. It’s become a very popular online shopping method for young people because it doesn’t require a credit card or even a credit check. Many websites have a buy now, pay later (BNPL) button or link right next to the advertised product, making it super easy to buy something trendy right now, without having to save up for it. Just use a debit card and you’re good to go.

But BNPL isn’t just for tweens and teens. It increasingly offered for all kinds of online and in-person purchases, including medical bills.

The BNPL payment/repayment process is similar to that of credit cards, so what is the difference?

First, making payments for something on a credit card may not always be the best way to manage your money, but for major purchases or unexpected emergencies, having one on hand is essential for most people. Credit cards also offer the advantage of not having to carry cash, perks like cash-back or rewards programs, and special incentives like zero-interest periods. Making credit card payments on time also positively impacts your credit rating (if you aren’t using too much of your available credit), and you have some options regarding payment dates and amounts.

There are good reasons to use a credit card, especially if you pay the balance in full every month. However, credit card buying power can quickly turn into the burden of paying off high-interest debt, so it must be well-managed. Many people struggle with this, and while not everyone can pay off a credit card balance in full each month, it should be a priority whenever possible.

Buy now, pay later (BNPL) plans offer the same convenience as a credit card and can help keep your spending within your monthly budget. If used on occasion, BNPL can be a handy, even fun, option. This type of purchasing usually comes with advantages, including no interest or with low service fees with each payment. In most cases, accepting a BNPL offer doesn’t require a credit check and if payments are made on time, they don’t impact your credit score. Most BNPL plans require automatic payments, which gives you one less thing to think about every month (but make sure you have the funds in your account).

These factors can make this a good option when you need or want something you can’t quite afford to pay for in full.

But let’s back up, because it is easy for BNPL to become BNRL (buy now regret later).

Then there are the disadvantages of using BNPL, especially for young shoppers using debit instead of credit cards. Miss a payment or bounce one because there aren’t enough funds in the account, and suddenly that great deal has substantial late fees and interest charges attached to it for the remainder of the payment schedule. If you’re using a credit card and miss a payment or don’t have the funds available, you get the late charges, the interest, and a negative mark on your credit report. Read the terms and conditions beforehand.

And then there’s BNRL.

Wait. BNRL?

BNPL makes it easy to make impulse purchases you might not need, might not want, or couldn’t afford if you had to pay for in full. Think about your last impulse buy – was it worth it? Before you punch the BNPL button, ask yourself: Can I easily take on the additional payment, or would I buy the item if I could pay for it in full? If the answer to either question is “No,” or even “Maybe,” you’re probably better off passing on the offer.