As the holidays approach, people are flocking to the malls and stores. With Black Friday around the corner, everyone is looking for the best deals on the hottest products. And now, retail stores and corporate giants have offered an even better option to pay than upfront—buy now, pay later.

But what is buy now, pay later? Is it worth it? Does it really make life easier? Can it cause issues in the long run? It is imperative to know the good, the bad, and the ugly of the ever-popular buy, now, pay later option.

Here are the facts to consider regarding buy now, pay later this holiday season:

What is Buy Now, Pay Later?

Just as the name suggests, this payment option allows consumers to purchase products now, and pay them off at a later date. Buy Now, Pay Later—or BNPL—is essentially a short-term financing option that allows consumers to make a purchase and pay over time. This finance option is typically broken up into smaller payments versus the total cost all at once.

This point-of-sale—or POS—is an installment loan that usually does not charge interest. This is a convenient option to make a purchase and not have to pay for it in full at the time of purchase. As wonderful as this option may seem, there are always factors to consider.

How BNPL Works

BNPL finance programs all possess differing terms and conditions. This payment program offers short-term, no-interest payments that are fixed. These types of programs do not have additional charges.

You will be charged a specific amount upfront, and each following payment will be the same amount. Typically, the payments are made over the course of several weeks or months until the total is paid in full. Payments are usually automatically deducted—referred to as autopay—from a bank account, debit card, or credit card. It may be possible to use a bank transfer or check as well.

Downside of BNPL

Although BNPL is a great installment payment option, it does have its downsides to consider. In fact, many people have landed themselves in financial trouble due to the option. For example, if you purchased many items with BNPL, although you are paying low payments each month, they can stack up. If you pay $25 each for all 8 items you bought with the BNPL program, you are paying a whopping $200 a month! The small payments can quickly compile into financial issues if you are not careful.

Additional downsides to the BNPL program are the following:

  • Fees and interest on unpaid balances
  • Difficult return processes
  • Possible bank overdraft fees due to auto-scheduled payments
  • Risk of debt
  • Possibility of hurting your credit score
  • No government protections
  • No credit card perks or benefits

How BNPL Affects Your Credit Score

If you are not careful, Buy Now, Pay Later installments can hurt your credit score. The majority of BNPL companies do require a soft-credit check, which doesn’t hurt your score, but other factors can—and will. Other companies may conduct a hard pull of your credit score, which can harm your score temporarily.

If you do not pay your loans at the time they are due, you can become delinquent. Your credit will be negatively impacted. Your score then lowers, which can affect other areas of your life. It was determined that people who used BNPL loans usually had lower credit scores.

Bottom Line

If you are interested in partaking in the Buy Now, Pay Later payment program, you will find many benefits. Not only is it easy to do, but it also allows you to purchase what you want at the time and pay for it at a later date. The convenience and ease of the process provide great benefits to many.
However, if you are not careful and track your payments correctly, you could end up with more debt than you can afford. Your credit can be negatively impacted, and you can be in over your head. By properly managing your accounts, you can reap the most benefits of the BNPL installment loan programs.