August 11, 2022

Pros and Cons of Buy Now Pay Later

Valerie Mellema
Fortune 500 Editorial Contributor

Many retailers now give the option of “buy now, pay later” (BNPL) to complete purchases. When a consumer makes a purchase, they get the item in the moment but pay for it over a series of installments. While BNPL has been around for many years, it became much more commonly used during the pandemic when consumers began to do more shopping online.

As it stands, buy now, pay later plans are available at an array of major retailers. However, there are both pros and cons to choosing the payment method. Understanding the advantages and challenges will give you insight into whether BNPL is right for you.

The Pros of Buy Now, Pay Later Transactions

Increased Convenience

One of the biggest advantages of buy now, pay later is that it’s integrated into checkout, which makes the process simple. All you need to do is choose the BNPL provider at checkout instead of selecting a debit or credit card.

Creating an account is simple, and the provider will send an email with your payment plan. Subsequent purchases can be made quickly and easily. Digging out your credit card is no longer needed. In addition, many physical retailers now take BNPL options like Klarna and Afterpay.

Lack of Interest

In most cases, the buy now, pay later provider doesn’t charge interest on what you borrow. There are only fees if you make a late payment to them. This could occur if you set up the account with a debit card or other form of payment that doesn’t have enough money to handle the transaction amount.

Assuming there is enough money there for each payment, no fees are charged. You can enjoy the item you bought and make payments after receiving it.

Automatic Charges

Instead of logging into a bank account and arranging every payment, BNPL makes things simple. When you apply for a buy now, pay later account, you choose where the money should be taken from. As payments are due, the BNPL provider takes the money out automatically, so you don’t have to.

Easy to Start

Setting up a buy now, pay later account is simple and usually takes no more than five to 10 minutes. A credit check is also not required for this account, unlike credit card applications. Instead, you’ll be asked for a few bits of information, including the account the payments will come from.

The setup process is similar to other websites. You make a username and password, share your phone number or email, enter a verification code, provide your date of birth and name, and input account information.

The Cons of a Buy Now, Pay Later Account

Late Fees

One of the biggest sources of revenue for buy now, pay later providers comes in the form of late fees. If there’s not enough money in your account to cover the payment and it is declined, you will often be charged a late fee if you manually pay the amount later.

Late fees can quickly add up for those who are not being careful. Some providers will charge an initial late fee and another if the repayment isn’t made within a certain amount of days.

Potential for Impulsive Spending

Many agree the largest issue with BNPL plans is that they can push consumers to make impulsive purchases. When you use buy now, pay later, you get the item or service you want and only need to pay for it later. 

The ability to buy things without paying for them at the same can be very tempting. However, some may buy items they don’t need or even want only to find they need to pay for them over the next few weeks.

Credit Score Problems

Even though your credit score isn’t considered to acquire a BNPL account, that doesn't mean your credit can’t be affected by using one. Those who have issues making payments could see their credit score drop. This will make it more challenging to get a credit card, secure a mortgage, or get an auto loan in the future.

BNPL services are regarded as a line of credit since they involve borrowing money and paying it back later. These purchases are taken into account with other expenses and debts when applying for loans or credit.

Is Buy Now Pay Later Right for You?

The choice to make use of a buy now, pay later is a personal one, just like utilizing any financial product. Take a look at your spending habits and financial situation to determine if BNPL is right for you. When used as a spending platform for items you could otherwise buy anyway, it can help you manage finances by spreading the payment out over several weeks.

On the other hand, those who have spending problems and often find it challenging to make repayments could make their financial situation worse by using BNPL platforms. Consider the pros and cons above when determining whether buy now, pay later is a good option for you.

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