Should You Use Buy Now Pay Later Companies?

Table of Contents

1. Terms and Repayment of Your BNPL Plan
2. Are You Using BNPL for Essential Purchases or Impulse Buys?
3. Ways To Positively Impact Your Finances Using BNPL Platforms
4. Does BNPL Give You More Control Over Your Finances or More Stress?
5. Plan Your Spending (and Saving) with Addition Financial Credit Union

When you go to check out for an online purchase, you can currently find many ways to pay. While credit cards used to be king, there is an ever-growing interest in “Buy Now Pay Later” (BNPL) payment methods like Shop Pay, PayPal Pay, Klarna, Google Pay, and Afterpay. Despite the popularity of these programs, there is never a disclaimer on the websites warning of the pitfalls. While some of the benefits might be immediately clear, looking at both sides of the coin may not be obvious. BNPL is a type of installment loan that allows consumers to purchase goods immediately and pay for them in installments, typically over a short period, like four payments. Most mainstream retailers offer this, which might make it convenient to click, but are you setting yourself up to swipe now and gripe later about your finances? 

Terms and Repayment of Your BNPL Plan 

You might have quickly clicked “yes” when prompted to agree to the terms and conditions of a Buy Now, Pay Later (BNPL) service, but how closely did you really read them? While those agreements can be long and filled with legal jargon, it’s crucial to understand what you’re signing up for, especially when your finances are involved. Hidden in the fine print are important details about payment schedules, potential fees, interest charges, and how your credit may be affected. Taking just a few extra minutes to review these terms can help you avoid unexpected charges and stay in control of your money.

When it comes to your payments, there are a few key details that might seem minor at first but could have serious financial consequences if overlooked.

• BNPL plans typically split your purchase into 4 equal payments over a set period (often 6 weeks), but some offer longer financing where you pay monthly installments. The payment schedule is usually automatic, with installments withdrawn from your debit or credit card—missing funds in your account can lead to overdraft fees.
• Not all BNPL offers are interest-free—some charge interest if the repayment period extends beyond a promotional window or if you miss a payment.
• Late payments can result in fees and may affect your ability to use the service in the future.
• Some BNPL providers report to credit bureaus, which means missed payments could impact your credit score, or 
• Multiple missed payments could cause late fees or could turn the debt over to a debt collector, which can damage your credit. 
• Terms vary by provider and retailer, so it’s crucial to read the fine print every time, even if you've used BNPL before.
• You may not have the same consumer protections as with other payment methods. 

While certain protections may apply to your purchases, simply agreeing to the terms, even without reading them, is legally considered acceptance, which can limit your ability to dispute issues later. The Consumer Financial Protection Bureau (CFPB) is a U.S. government agency responsible for regulating and protecting consumers in the financial market. The CFPB has increased oversight of BNPL lenders and is considering regulation that would provide consumers with protections similar to those offered for credit cards. This means that you can dispute a fraudulent charge or get a refund, like you can for a credit card, but other actions (like you not being able to make the payments) are out of their range of help. 

Are You Using BNPL for Essential Purchases or Impulse Buys?

If you regularly use BNPL services, take a moment to consider what you’re buying. Using BNPL to manage essential purchases — like groceries or household items — may be reasonable, especially if your income fluctuates due to freelance or contract work. When the payments fit into your budget and you’re confident you can pay on time, it can be a helpful tool. However, BNPL is often used for impulse buys, and the convenience of a quick “treat yourself” purchase can create a false sense of financial flexibility. Without mindful spending, those small splurges can quickly add up and lead to more financial strain than expected.

A few BNPL purchases later, and you might be surprised by payments you forgot were approaching. If you do not consciously check the remaining balances or have the app conveniently on your phone to do so, it could be trouble. Consumers love the hit of dopamine that comes with a “confirm order” or “buy now” click in a moment of treating themselves, but by not paying in full, for some people, this could mean falling into a hole of debt without even realizing it. 

Ways To Positively Impact Your Finances Using BNPL Platforms

While we mentioned that BNPL services could suit some consumers and their ways of paying, BNPL platforms can bring positivity to your finances if used correctly. If you have a bigger purchase you need to make, are worried about putting a large amount on a high-interest credit card or just need to spread out your spending, these platforms could benefit instead of harm. 

How Mindful BNPL Purchases Can Help You 

1. Helps Spread Out Large Purchases: BNPL allows you to divide a purchase into manageable, interest-free installments, making it easier to afford essential or big-ticket items without taking on high-interest credit card debt. 
2. No Interest (When Paid On Time): Many BNPL plans charge 0% interest if you pay on time, making them a potentially cheaper option than credit cards or personal loans.
3. Can Reduce the Need for Credit Cards: For people avoiding or unable to get traditional credit, BNPL provides a short-term financing option without applying for a credit card.
4. Budget-Friendly Cash Flow Management: BNPL can help you align purchases with paychecks, especially if you're on a tight monthly budget and need to avoid large up-front expenses. 
5. Accessible for Those with Limited Credit History: Many BNPL providers don’t require a high credit score to qualify, making it an option for younger users or those with thin credit files. Using BNPL typically doesn’t affect your credit score because most providers don’t perform hard credit checks. A few BNPL companies now report on-time payments to credit bureaus, which can help improve your credit score when used with care.
6. May Offer Flexible Payment Options: Some BNPL services allow you to choose from several repayment timelines, which can be tailored to your financial situation.
   

Does BNPL Give You More Control Over Your Finances or More Stress?

A final answer to this question is tough because it depends. When used thoughtfully and responsibly, Buy Now, Pay Later (BNPL) payment methods can support your financial goals by easing the burden of a large purchase, especially if the alternative would involve high-interest credit card debt. Splitting up payments can make budgeting easier, providing a sense of control and flexibility in how you manage your money. For many, this control comes from knowing exactly how much is due and when, which can help you plan and avoid financial surprises.

However, the flip side of that control is the potential for mounting stress, especially when BNPL is used impulsively or without a clear repayment plan. Because it’s so easy to click “buy” and defer payment, the psychological impact of spending can be muted, making it tempting to overextend yourself. Unlike traditional credit cards, which often provide monthly statements that consolidate your spending, BNPL purchases are frequently spread across multiple platforms and retailers, making it harder to get a full picture of what you owe. This fragmentation can lead to missed payments, overdraft fees, or a general feeling of being financially overwhelmed.

Control and stress, in this case, are two sides of the same coin. BNPL can give you more control if it’s aligned with a disciplined budget and tracked closely, but it can also become a source of stress if it encourages a pattern of overspending or disorganization. The key is mindfulness: treating BNPL like any other financial tool that requires planning, boundaries, and regular review.

Plan Your Spending (and Saving) with Addition Financial Credit Union

At Addition Financial, we would love to talk about your budget and other ways to maximize your finances apart from a BNPL company. Have you taken a look at our blog, Our Best Money Advice & a Personal Finance Checklist? It is a great place to start building a basic plan for your finances. Let us be in your corner and offer a different kind of “treat” with our local service, expert team, and flexible options for your life. And if you find yourself a little too deep with BNPL or other debt, give us a call today so we can plan for your future and goals.