What is ‘buy now, pay later’?.
Did you see a button during checkout that says “Pay in 4” or “Buy Now, Pay Later”? This is a BNPL (Buy Now, Pay Later) service. It is a way of purchasing something today and paying for it later—usually in smaller amounts over several weeks or months.
Such institutions are made available by merchants like Klarna, Affirm, Afterpay, and Zip. They are used liberally to buy clothes, food, gasoline, and even lunch.
Why BNPL is so popular
It is so popular because it appears straightforward and convenient. Some of the reasons people enjoy it:
- If you make your payments on time, you won’t pay any interest.
- Split payments over time.
- The approval process is simple and doesn’t require a credit card.
It sounds wonderful, yes? However, there’s a catch—missing a payment can quickly complicate matters.
Yes, it’s still a loan
It will not feel like debt when you shop with BNPL. But let’s get real:
BNPL is borrowing money.
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Just because you don’t pay interest immediately doesn’t mean it’s free. If you miss payments, you may:
- Struck with late charges (sometimes $30 or more).
- Harmed your credit rating.
- Spent more than you intended.
Even on a $5 sandwich, a late BNPL payment will cost you $35. That’s 600% interest!
The new BNPL loan world
BNPL used to be reserved for big-ticket purchases, like new furniture or getting the roof fixed. Now you can put it on smaller-ticket buys—lunch or espresso, too.
That’s risky. If you’re borrowing small amounts of money repeatedly, you may forget that you have outstanding payments. As a result, you may find yourself overwhelmed with too many payments at once.
It may surprise you. Those two $10 buys today will add up to $60 worth of payments next week.
The good news about BNPL
Used sensibly, BNPL can be helpful if:
- You don’t have a cushion of emergency funds.
- You need to fix your car or buy medicine.
- You know you’ll have money to pay back in due time.
In these cases, BNPL can give you quick relief without taking from savings or using a credit card.
The danger of recurring BNPL spending
The pitfall is that most people develop a habit of using BNPL for daily expenses, such as food, petrol, or lunch. That is where issues start.
Why? Because:
- You may not know how much money has disappeared from your wallet.
- You can’t keep up with how many small loans you’ve borrowed.
- You’re making many little payments all at once.
In a flash, that $5 and $10 in fees become $100 or more per week in payments.
How BNPL can hurt your credit
If you skip a payment, BNPL lenders can:
- Please report the late payments to the credit bureaus.
- Charge late fees.
- We will forward your account to collections.
All that can hurt your credit score, and it might be more difficult to borrow money in the future—like getting a car loan or having an apartment rental application approved.
What you should ask yourself first
Before you hit that BNPL button, ask yourself these simple questions:
- Do I know I’ll be able to make all the payments on time?
- What if I miss a payment?
- Do I pay late fees or interest if I’m running late?
- Am I buying something that I really need?
- Would I buy this if I had to pay for it all at the moment?
If the answer to either one of those is “no” or “I don’t know,” then pass on it.
How to use BNPL safely
You can use BNPL safely without hurting your finances. Here are some easy tips:
1. Reminders
Add payment due dates as reminders to your phone calendar so that you won’t forget.
2. Use it for needs, not wants
Try not to use BNPL for discretionary things such as snacks or clothes unless absolutely necessary.
3. Stick to one loan at a time
Take no more than one BNPL loan. It’s hard to keep track of all of them.
4. Only use BNPL if you know that you will have money
If you are paid after the due date, beware.
5. Check the terms
Always check whether there is a late fee and payment arrangement before you join up.
Know the dangers, take charge
BNPL can be a good thing if you use it right. It is convenient and can give you flexibility—but only if you pay on time and do not overspend.
In doubt, wait: Do I absolutely need this today if I can’t pay for it in a moment?
Taking a moment to ask yourself that question could save you money, stress, and a credit hit down the road.
