“Buy now, pay later” (BNPL) services like Klarna, Afterpay, and Affirm are transforming how people shop by splitting purchases into smaller, manageable payments.
Their promise of flexibility and, often, no interest has made them a go-to option for millions. However, these services are not without their drawbacks.
Before jumping in, here are five surprising facts that might influence how and when you use BNPL.
1. BNPL Plans Aren’t Always Interest-Free
The appeal of BNPL often lies in the promise of interest-free payments. Many providers offer installment plans with zero interest if timely payments are made. However, not all plans are created equal.
Some BNPL services charge interest rates that rival or even exceed those of credit cards. For example, certain longer-term installment options may have an APR of 20% or more. Additionally, missing a payment could lead to late fees or the cancellation of your interest-free terms, making your purchase much more expensive than you originally intended.
Always review the terms carefully to understand whether you’re committing to a plan without hidden costs.
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2. BNPL Can Affect Your Credit Score
BNPL services often market themselves as alternatives to traditional credit cards, but they can still impact your credit. In most cases, providers don’t report on-time payments to credit bureaus, which means using BNPL won’t help you build credit.
However, missing payments is a different story. If you fall behind, some providers may report delinquent accounts to credit bureaus, which could hurt your credit score. Additionally, certain BNPL providers perform a soft or hard credit check during sign-up. A hard inquiry could temporarily lower your credit score, so verifying this before using the service is essential.
3. Returning Items Isn’t Always Simple
When you buy something with BNPL, the refund process can become more complicated than paying with a credit card or cash. Even if the retailer accepts your return, BNPL services often require you to keep making payments until the refund is fully processed.
This delay can tie up your funds for weeks, leaving you out of pocket until the process is complete. In some cases, partial refunds can cause even more confusion if the BNPL provider doesn’t adjust your payment schedule accurately.
Before using BNPL, check the provider’s return policies and how they align with the retailer’s policies to avoid surprises.
4. It’s Easy to Overspend
Splitting a purchase into smaller payments can make expensive items feel more affordable. However, this ease of payment can also encourage impulse buying. The “buy now” part of BNPL can overshadow the “pay later” responsibility, leading many shoppers to commit to multiple plans at once.
For example, if you agree to three separate $50-a-month payments, you’ve essentially committed to $150 in monthly expenses without realizing it. This habit can quickly spiral out of control, leaving you juggling multiple payments and straining your budget.
To avoid overspending, treat BNPL purchases as if you were paying in full and consider whether the item truly fits into your financial plan.
5. Not All Retailers Support BNPL
Although BNPL services are widely accepted, they aren’t universal. Some retailers don’t support these services, and even those that do may have restrictions on which items qualify for installment payments. For instance, high-ticket items like luxury goods or specific categories, such as gift cards, are often excluded.
Additionally, some BNPL providers limit how much you can finance based on your creditworthiness. This can leave you unable to use BNPL for larger purchases or force you to explore alternative financing options.
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Think Before You ‘Buy Now, Pay Later’
BNPL plans can be useful, offering flexibility for those who want to manage their cash flow more effectively. However, they aren’t without risks. From potential interest fees to complications with refunds, it’s crucial to understand what you’re signing up for.
You can enjoy the convenience without falling into financial pitfalls by reading the fine print, staying on top of payments, and being mindful of how BNPL fits into your overall budget. Use BNPL responsibly to enhance your shopping experience, not complicate it.
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