Is Buy Now Pay Later Right For You?

by: holli casto
vp of training and development
Published 2/15/2024

In the last five years, buy now, pay later services have exploded in popularity. You'll frequently see an option to break your purchase up into four payments at your online checkout through companies like Afterpay or Klarna. As a consumer, you may be asking yourself how these buy now, pay later services work. In short, buy now pay later services are short-term, interest-free financing for online purchases. It's easy to see why these services have risen in popularity in the last few years, with inflation and online shopping on the rise. That said, let's break down the pros and cons of these services. 
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The Pros 

Once you've set up a payment profile with one of these buy now, pay later services, checkout is just the click of a few buttons.  
No Interest Charges 
That's right! These services don't charge you interest for making your payments in installments. This is the allure of the whole system: You can break down the purchase without paying extra.  
Instant Approval 
These services tend to instantly approve users for certain limits, usually around $500, and will progressively increase that limit as you continually make online payments.  
Some version of buy now, pay later has existed for a very long time 
Going back many years, buy now pay later arrangements have existed for a very long time. From making arrangements with the furniture store to finance your couch purchase, to the vacuum salesman. It's clear why these systems are in place. There will always be items you need to purchase but may not be able to afford all at once, like stoves, mattresses, and other essentials that you need to get by. That said, now there are countless ways to pay for those purchases, from traditional financing through a financial institution with interest to buy now, pay later services to financing through the store.  

The Cons 

Buy now pay later does not build your credit 
Even though these services are small extensions of credit, they do not report to the major credit bureaus. You can be a loyal customer, making years' worth of on-time payments, but none of that will reflect positively on your credit score. That said, if you miss too many payments or are late, they may turn your account over to collections, which will show up on your credit report.  
Purchases add up quickly 
Keep a close eye on your total balance owed in these buy now, pay later services. If you're making multiple buy now pay later purchases, while it may feel like the purchases are small because the payments are small, the total balance you owe the buy now pay later service can add up quickly.  
These buy now, pay later services charge you late payment fees should you miss your payment by more than a few days. Luckily, these fees have been reduced after additional scrutiny in recent years, but it is imperative to keep your due dates in mind. Furthermore, these buy now, pay later services charge a steep fee to the businesses you're purchasing from. While all payment processing services impose a processing fee on the business you're purchasing from, buy now pay later services charge a higher fee than credit and debit card processors. While, as a consumer, the fees imposed on the business may not be your biggest concern, especially if you're purchasing from a big retailer, keep these fees in mind when purchasing from a smaller business and think about if you really need to pay later.  

Should I Use Buy Now, Pay Later?

If you take anything away from this, please remember that even if you choose to break up your purchases, make sure you're making purchases you can ultimately afford. If you really need something but just need to wait for your paycheck to hit, that can be a reasonable use for buy now pay later services. But if you're using buy now pay later to rationalize a large purchase you don't need, you should reconsider your buy now, pay later habits. A lot of spending and shopping habits are psychological, and choices at checkout can be rationalized a lot more if the price is broken down into smaller payments. That said, in the end, you are still paying full price for that item. 

Furthermore, we strongly recommend you be rewarded for making on-time payments by using products to make positive contributions to your credit report. Buy now, pay later has a time and a place, but if this is a purchase you can make within the month, then consider putting it on a credit card, where you'll start building good credit. You'll thank yourself later when you need to make even bigger buy now pay later purchases: cars and houses. If you're worried about building too high of a credit card balance, use your debit card. 

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