Buy now, pay later (BNPL) is just like it sounds. Some online retailers let you buy now and pay later with a BNPL service. This means you can split the total cost into smaller payments over time. Additional attractive benefits like splitting payments, 0% financing costs, and the promise of no credit checks have made the buy now, pay later payment option increasingly popular – especially with young consumers.
BNPL is often called “phantom debt", since it is not reported to the credit bureaus. As a result, it is not visible on your credit history.
Is it as good as it sounds?
Although buy now, pay later may be a good option for some consumers, it’s not without risk. Before you are quick to click buy now, consider these pros and cons to help you decide if buy now, pay later is right for you.
Pros
- Lower payments - Breaking your payments into smaller amounts spread out over weeks can make budgeting easier. This may better fit your pay day cadence for repayment.
- 0% financing - If you make payments on time according to schedule, typically the loans don’t charge a finance fee or interest amount.
- No credit check required - Often you can secure a BNPL option without checking your credit. This can be appealing to those with little, no, or poor credit histories.
Cons
- Rates - Spreading your payment over time may seem easy. However, you could face a high interest rate if you make a late or incomplete payment, even just once.
- Fees - BNPL options may have significant late fees, which can be flat amounts or a percentage of the financed amount.
- Overspending - The appeal of BNPL can lead to many purchases. Make sure you have enough money in your bank account each month to pay the installments on time.
- Building credit - BNPL does not report on-time payments to credit bureaus, so it won't help your credit profile. However, it does report late payments which can hurt your credit score. That means, your credit picture cannot improve, but it may decline.
- No buyer protection - When you use BNPL, you don’t get the same protection as with credit cards like Visa or Mastercard. This means you may not receive coverage for defective products, returned items, or items that never arrive. Learn more about Visa Zero Liability Coverage.
What are my options?
Depending on your financial situation and budget, a buy now pay later service may or may not be a good idea. Other financing alternatives to consider for your purchases that may fit your needs better than BNPL include:
- Credit card - Choose a low-rate credit card that offers rewards points. Look for special introductory periods and buyer protection, like Visa Zero Liability Coverage.
- Personal loan - You may qualify for a personal loan based on the amount you need and your credit. This loan usually has a fixed rate, term, and payment, which can help you budget better.
- Shared secured Visa credit card - If you want to build or fix your credit, consider a share secured Visa credit card. A secured card gives you a credit limit that matches your deposit amount in a savings account.
The best option is to delay a purchase if you can’t afford it. Think about putting that money away monthly into a savings account that earns interest. Once you’ve reached your savings goal, you can pay for your purchase in full.
As with many financing options, your situation is unique to you. Carefully weigh the pros and cons to determine what makes sense for you. And if you need help weighing your options, reach out to us. We’re happy to help.
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Buy Now Pay Later — Is It a Good Idea?
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