Financial Education Resources

Buy, Buy, Buy, Buy!

Today, four in five U.S. consumers use buy now, pay later options to make a range of purchases from furniture and home goods to groceries.

Be careful if you’re thinking about using buy now, pay later offers.

If you’ve shopped online, you’ve probably seen buy now, pay later options. You may have even bought items with this method, either through a retailer or through an app. It’s hard to beat the convenience, but there’s also a downside. We’ll look at four dangers to consider before making a buy now, pay later purchase.

1. It Can Be Confusing
   While buy now, pay later seems pretty straightforward, it can get complicated, especially if you need to cancel an order or return an item.
   
   Buy now, pay later (BNPL) loans are generally handled by a separate company and not the retailer. If you need a refund, whom do you contact – the store or the BNPL company? It can be a frustrating experience; one you probably won’t anticipate when you opt for what is promised as an easy and simple option.
   
   
2.  Your Credit Score May Be Affected
   If you have a problem with a BNPL purchase and stop making payments or happen to miss a payment, it could impact your credit score. Up until recently, BNPL loans have not been reported to credit bureaus. However, the three major U.S. credit bureaus have reported that they will soon collect and include this information on credit reports. Just as a late or missed credit card payment can ding your credit, so might a missed or late BNPL payment. If you use the BNPL option, make sure you read the fine print and find out what happens if a payment dispute arises.
   
   On the flip side, until credit bureaus begin to collect this information, conscientiously paying off a BNPL loan won’t help you build credit.
   
   
3. It Can Create Bad Spending Habits
   While it’s often easy to overspend with a credit card, the same is true for BNPL. In fact, the seamless checkout experience makes it even easier to make an impulse purchase you might not really be able to afford. Buy now, pay later is often promoted as a “friendlier” way to spend without getting loaded down with credit card debt. But it’s still debt, and it can hurt your financial well-being – especially if you’re already struggling with spending too much on credit cards.
   
   You’ll also want to be careful about what you buy with the BNPL method. While it might make sense to buy a big-ticket item like a computer or a major appliance and make payments (especially if you’re offered a 0% interest deal), buying everyday items like clothes or cleaning supplies on credit could lead to high levels of debt.
   
   Millennials and Gen Zers are digital natives and therefore a prime target market for BNPL online financing. However misusing that option can make it harder to develop responsible spending habits and stay within a budget.
   
   
4. There’s Not as Much Oversight
   While the credit card industry is heavily regulated, providing a great many protections to consumers, BNPL providers work with little oversight, which can be risky for borrowers. In fact, the Consumer Financial Protection Bureau has warned consumers of the hazards of BNPL credit. Although companies might not charge interest, some charge late fees, which can show up on a credit report, hurting a consumer’s credit score. And some companies use debt collection agencies to go after unpaid debts.

Get the Facts

If you’re thinking about purchasing something with a buy now, pay later plan, be sure you understand that you might be heading into dangerous territory. It’s important to remember that most BNPL providers charge fees for late payments, and if you default, the initial loan will become a loan with high interest rates. You’ll also want to consider what impact the purchase will have on your credit score. If you have questions or want help managing your finances, reach out to us.