Buy Now Pay Later - Deal or No Deal?

November 26, 2022

Remember the layaway system that was popular during the 50s, 60s, and 70s before credit cards changed the whole shopping dynamic? The layaway service was a way to make a retail purchase by placing a down payment on item(s) and then making in-person installment payments by cash or check to pay the balance over time. Once the purchase was paid in full, it was yours to take home.  

Fast forward to the 2000s. You may be familiar with third party companies such as Affirm, Klarna, Zip, and Afterpay, among a plethora of others that offer Buy Now Pay Later (known by the acronym BNPL) options similar to layaway at checkout. What’s the hype and does it make sense to use them?

How BNPL Works

Whether shopping online or in person, at checkout you may be offered a BNPL option to split your purchase into 4 or more payments, typically every 2 weeks. As long as you make your payment on time you will pay no interest or fees. Sounds great! What’s the hitch? If you miss a payment some companies charge a late fee and interest of as much as 30%! Terms vary by company and retailer, especially for high ticket items.  

Is There a Credit Check to Use BNPL?

More than likely yes, there may be a soft hit to your credit depending on the company. If approved, this can work in your favor to build/improve your credit if you pay on time as some companies do report to credit bureaus. Conversely, missed or late payments may also be reported. You may be denied if you have a less stellar credit history and a tendency toward late payments.  

What’s The Drawback to BNPL services?

Simply....overspending, especially during the crazy busy shopping periods around holidays. If you are a frequent BNPL user you may find yourself making payments more frequently than you would if paying a monthly credit card. Tracking your payment dates is especially important, so it’s best to review your regular monthly expenses to make sure you can absorb these additional payments.  Be sure to read the fine print as terms and fees vary by company.  Happy shopping!