'Buy now, pay later' plans: Great way to shop, or a trap?

A new survey finds more than 50% of users report regrets
Posted at 7:56 AM, Apr 24, 2024

"Buy now, pay later" services gained much traction during the pandemic. With money tighter than ever for many families, a new report in Bankrate said more than a third of adults in the U.S. have tried buy now, pay later, or BNPL services.

They have their benefits, such as low-interest or even interest-free payments.

But now we're starting to see potential drawbacks to using these platforms.

Counselors warn about the risks

College financial counselor Lisa Fails educates college students about basic money matters, including the risks of these programs.

"They want it now," she said, "but they may not have that full price, and it's so easy to push that button."

A recent Bankrate survey found that 39% of adults have shopped using buy now, pay later services from lenders like PayPal, Affirm, Afterpay or Klarna. They allow you to split purchases into installments with no or minimal interest, unlike a credit card that can charge 20% APR in some cases.

A $200 purchase, for example, might be split into four $50 payments, which some college students said can be helpful.

"It really helps because many college students, especially freshmen, don't have a job per se," student Kayla Knapper said.

However, Bankrate financial analyst Ted Rossman reminded consumers that buy now, pay later is still debt.

"The downside is you trick yourself into overspending," he said.

Bankrate's survey found that many consumers:

  • Overspent
  • Had trouble making returns (with some stores unable to easily take back a BNPL purchase)
  • Regretted purchases
  • Missed payments

The survey found that more than 50% of users experienced overspending or missed installments.

"If you pay really late or not at all," he said, "you could be turned over to collections and that could ding your credit"

To limit overspending, Rossman said:

  • Don't buy on impulse
  • Isolate big purchases from the rest of your finances and purchase them separately

He also said to read the terms carefully to avoid late fees and high interest.

"As much as buy now, pay later tries to position itself as the anti-credit card or the kinder gentler credit card," Rossman said, "sometimes these plans charge rates as high or even higher than credit cards."

So, while buying now and paying later can help with a necessary purchase, it can be risky if you depend too much on them.