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Should you Buy Now Pay Later?

Your online shopping cart is full and you’re ready to check out. Your next decision: how would you like to pay? It seems like there are so many options now to fit every financial situation: credit card, debit card, PayPal, Apple Pay, and now…Buy Now Pay Later. 

Buy Now Pay Later options are booming, and they can be a great option for many consumers. But how do you know if it’s right for you? 

What is Buy Now Pay Later (BNPL)? 

Buy Now Pay Later (BNPL) options are becoming increasingly popular for purchasing everything from pet supplies to a Peloton. As the name suggests, BNPL is a deferred payment option that generally allows you to pay for something over time with monthly installments—usually without paying any money up front. 

When you are making an online purchase, you may see the option to pay with a credit card or  buy now and pay later with a service like Affirm, Klarna, Afterpay, or PayPal Credit (among others). You may also be able to use BNPL services in person at major retailers, such as Walmart. 

What are the benefits of buying now and paying later? 

BNPL services are a great option if you cannot afford to pay for a purchase at once, especially when it comes to unexpected expenses like needing a new washing machine or tires for your car. 

This method of payment has also opened doors to make luxury goods more accessible and affordable for more consumers. For example, with BNPL, a Peloton can cost about $40/month, versus thousands of dollars in one lump sum. And oftentimes, there is no pre-approval or credit check required, so even consumers with no credit or poor credit can qualify (unlike with traditional financing options). 

What are the downsides of using BNPL services? 

While buying now and paying later in smaller amounts can be extremely helpful and easier on your wallet, it’s always good practice to closely monitor your budget and make sure you don’t bite off more monthly payments than you can chew

Missing payments or making late payments can sometimes result in late fees, and depending on the provider, they may also report late payments to credit bureaus. 

How do BNPL services impact your credit score? 

It depends. There are several different factors that can come into play when it comes to using BNPL and your credit score. Here are a few to keep in mind. 

Is there an application or hard inquiry to qualify? Most BNPL providers do not require a hard pull of your credit report but it is important for consumers to check the providers terms because some do and it may be dependent on the amount of the purchase being financed or the repayment terms being provided. On the other hand, financing a purchase almost always involves a hard inquiry. 

Does the activity get reported to the credit bureaus? When it comes to reporting tradeline history to the bureaus, most BNPL providers do not report to credit bureaus, unlike when you finance a purchase. If you are interested in building credit with BNPL, it is important to check the provider’s website and see the terms under which they will report. Of those that do report, most do not report to all three credit bureaus, and they may only report loans with longer repayment periods and/or loans with financing terms greater than 0% APR. 

Missing payments can still hurt you. Since most BNPL providers don’t report to the bureaus, you most likely would not have any positive or negative impact to your credit. That being said, if you default on an BNPL obligation, it is very possible that it might end up hurting your credit if the debt is charged off or is sold to a collection agency. As with any payment plan, you should not enter into a BNPL contract if you are not sure you can make the required payments. 

Making your decision. 

Knowing your options and what they entail can help you make the decision that’s right for you and your finances. When considering a BNPL service, it’s important to know how it can impact your credit score and what it means for your overall budget. 

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Published August 11, 2021
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