The buy now, pay later (BNPL) concept has gained significant popularity for those who may not have immediate access to funds but still want to make purchases without delay. With BNPL, customers can pay for products and services over time, typically in installments over a few weeks or months and with little to zero interest.
While BNPL offers consumers more choice and greater convenience, it’s important to weigh the program’s pros and cons before making any financial commitments.
What is buy now, pay later?
Buy now, pay later (BNPL) is a type of short-term financing many online stores and brick-and-mortar retailers offer their customers. BNPL options enable customers to split their payments into smaller, more manageable installments.
For example, let's say you buy an $800 refrigerator with a "pay in four" program. In this case, you will pay $200 at checkout and be responsible for three additional payments of $200 each.
How does BNPL work?
BNPL is a simple concept. If you are shopping online where BNPL is offered, you will see this option during checkout. You can proceed with the purchase by using a BNPL app or a payment processing service. Some credit card companies also offer BNPL options.
Remember that retailers might have partnerships with certain BNPL apps, not those you use. In that case, consider another payment option, such as a credit card or debit card. If you use your debit card, ensure you have the necessary funds in your account.
How do I choose a BNPL app?
There are several BNPL apps to choose from, and the top apps can be used at many online stores and retailers. Research available apps and pick one that can be used at the stores where you shop most.
Once you download a BNPL app, you will need to set up your account and provide your contact information and payment details. As part of the approval process, the BNPL provider might perform a soft credit inquiry, which will not affect your credit score.
What’s the downside?
BNPL can make it easier to complete purchases, but you should approach this payment option with caution. Doing so can help you make informed decisions that align with your financial goals.
Keep an eye out for:
- Fees: Read the fine print regarding late fees and interest charges that may be incurred on unpaid balances.
- Credit score impacts: Making late BNPL payments can negatively affect your credit score.
- Overspending: Immediate access to BNPL financing can lead to overspending and debt accumulation. Follow the 30-day rule the next time you find yourself considering an impulse purchase. Wait to determine if, after 30 days, you still want the product or service. You might wind up changing your mind and prefer to save the money.
Tip: Whether or not you use BNPL services, you can prevent overspending with a solid budget. Get started or refresh your budget-creating skills here.
Is it safe to use BNPL?
Like credit cards and debit cards, BNPL apps are used online and in physical stores, where cyber thieves thrive. Be mindful of this and take steps to protect your personal and financial data when using your BNPL account.
Follow these tips to protect your information:
- Keep your BNPL app updated with the latest version.
- Enable two-factor authentication (2FA).
- Use unique passwords.
- Verify all websites prior to making a purchase.
Visit our Cybersecurity Center for more tips on protecting your information.
In addition to these security considerations, you should always ask yourself if adding another payment to the mix is manageable or if you are better off using your bank credit card or debit card.
Published August 2023
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.