Buy Now, Pay Later: The Cost of Convenience

3 Min. Read

Have you ever been shopping online and noticed a “Buy Now, Pay Later” option? If not, let me introduce you to this… “Buy Now, Pay Later” (BNPL) services have gained massive popularity, offering an easy alternative to credit cards.

According to a 2022 report from the Consumer Financial Protection Bureau, the number of BNPL loans in the U.S. skyrocketed from 16.8 million in 2019 to 180 million in 2021. While the convenience is undeniable, it’s essential to understand the potential financial risks that come with using this payment plan.

The Appeal of BNPL

Services like Affirm, Afterpay, and Klarna allow consumers to break up purchases into smaller, interest-free installments, making it easier to afford items without waiting for the next paycheck or saving up for months. There are BNPL options for practically anything now, even paying for flights with Uplift. In theory, it is a helping hand to those who might need to buy items and can’t wait for more money to come in. But there is more to it.

For example, instead of paying $200 upfront for a new coffee table, BNPL lets you spread that cost over four payments of $50. This structure makes it feel like a no-brainer, especially for those on tight budgets. However, as with any form of credit, the fine print matters.

The Hidden Costs of BNPL

Despite its advantages, BNPL comes with drawbacks you should be aware of. Here are some risks to keep in mind:

Missed Payments Can Cost You

A LendingTree report found that nearly half (47%) of BNPL users have missed a payment, up from 40% in 2023. When this happens, you may face late fees that increase the overall cost of your purchase– making the loan last longer and more expensive.

Impact on Credit Score

Some BNPL providers report payment history to credit bureaus. Missed payments can negatively impact your credit score, yet on-time payments may not necessarily help, as not all BNPL services report positive payment activity.

Risk of Overdrafting Your Account

BNPL services often require access to your checking account for automatic withdrawals. If you forget about an upcoming payment or spend more than expected, you could face overdraft fees from your bank on top of BNPL late fees. And that’s never good!

Encouraging Debt Accumulation

Because BNPL makes purchases feel more manageable, it can encourage overspending. Small payments add up quickly, making it easy to lose track of how much you owe. Before you know it, you could have three of these small loans at once, that have their own recurring payment dates– along with your regular monthly expenses.

Using BNPL Responsibly

The key to using “Buy Now, Pay Later” responsibly is to be mindful about your spending. Here are some best practices:

• Treat BNPL like a credit card and ensure you can afford the payments without straining your budget.
• Avoid using BNPL for impulse buys— stick to essential or planned purchases.
• Read the terms carefully to understand potential fees and interest rates.

Need Help with Buy Now, Pay Later Payments? You’re not alone!

If you’re struggling with BNPL payments, don’t hesitate to seek help! You are not alone!  Marine Credit Union partners with GreenPath Financial Wellness, a trusted nonprofit organization that provides expert financial guidance. Their certified financial counselors can help you manage payments and stay on track with your financial goals.

Looking for more financial guidance? Explore GreenPath’s free recorded webinar to learn about Debt Management Programs (DMPs), why they might be a good option, and how GreenPath supports individuals in achieving financial stability.

In this free recorded webinar, you will learn…

• What a Debt Management Program (DMP) is
• Why someone might choose a DMP
• How GreenPath supports you throughout a DMP

While BNPL can be a helpful tool when used wisely, understanding the potential pitfalls ensures you make smart financial decisions that match with your long-term goals.