The ability to buy a product or service now and pay for it over time is nothing new. It’s the same concept that made credit cards one of today’s most popular forms of payment. Yet, everywhere you look lately, from grocery stores to online retailers, there is a “new” way to pay: Buy Now, Pay Later (BNPL).

What makes the Buy Now, Pay Later option any different from credit cards? Why is it spreading like a wildfire among consumers as a preferred payment option? And, is there a catch?


What is Buy Now, Pay Later (BNPL)?

The Buy Now, Pay Later payment structure can best be compared to a short-term, no-interest loan. As a consumer, you can purchase a product or service now and pay for it in set installments over time.

Typically, the purchase amount is broken up into four equal payments that must be repaid either weekly or monthly. If you make each payment on time, you will not be charged interest or fees.

Depending on your age, you could say it’s similar to layaway. Only, you receive the items upfront instead of after your payments are made.

The BNPL option can provide a win-win for both retailers and consumers:

  • Merchants love the program because it allows customers to buy things that they might otherwise not be able to afford. It can increase sales and fewer abandoned carts online.
  • Customers can enjoy their purchases immediately and pay for them over a designated period. As long as payments are made on time, they will not incur any interest or fees.


The Perks of Buy Now, Pay Later

You’re probably already beginning to see why this program is starting to grow in popularity. Let’s review a few additional benefits available:

  • Convenience: Most retailers have the BNPL option available when checking out, both online and in-store. Approvals are usually instant without the need to apply like a traditional loan or credit card.
  • Some Don’t Do a Credit Check: Some BNPL companies do not check your credit score when enrolling in their program. This feature can be beneficial to those people with less-than-stellar credit histories. However, read the fine print before signing up for anything.
  • Pay Over Time: Similar to credit cards, you can pay for the product or service over time. You’re only required to make a minimum monthly payment with credit cards. You can essentially take as long as you want to repay. BNPL, on the other hand, typically breaks the payments into four equal installments. Depending on your purchase amount, these payments may be required weekly or monthly. They also may be quite high depending on what you’re buying.
  • No Interest or Fees: As long as you make each payment on time, you will not be charged any interest or fees.


The Drawbacks of Buy Now, Pay Later

While the benefits of BNPL may have you hooked, there’s always a catch. Here are a few reasons you might want to stop and think before you jump right in with BNPL payments.

  • Can Affect Your Credit: Some BNPL providers will pull your credit when you decide to use the service. They do this to see if you’re likely to meet the terms of the payment plan. A “hard pull” on your credit can have a negative impact on your score, regardless of if you get approved or not. Make sure you read the fine print from the BNPL provider to see if they do a hard pull.
  • There’s No Help: BNPL services don’t offer the same consumer protections as other forms of payment, like credit cards. If you buy something with a debit card or credit card, your bank or credit union can go to bat for you should any problems arise. However, if you use a BNPL service and have an issue with the item you bought, it’s up to you to resolve it.
  • High Interest: One of the reasons BNPL services are so tempting is that they don’t charge monthly interest. However, if you’re late on a payment, you will get hit with a late fee or even sky high interest charges. Before you use a BNPL, consider if it’s really a good idea. Are you okay with a credit hit? Is there a chance you could miss a payment? If the answers give you pause, it’s a better idea to simply save enough for the item and then buy it the old-fashioned way.
  • Lack of Regulation: As of right now, the BNPL arena is very similar to the wild west. There is practically no federal oversight, causing an abundance of fintech companies and financial institutions to jump right in. Without federal regulations, each provider can make its own rules, policies, and pricing structures, which ultimately limits the power of the consumer.
  • A Multitude of Providers: While you may be familiar with one BNPL service, not all are the same. Without uniform rules or policies to govern these programs, consumers can make costly mistakes when one provider’s rules are different from others.
  • Payment Structure: The lure of paying no fees or interest is what hooks consumers. But the real catch is when people begin to use this payment option regularly. Payment due dates and amounts can get confusing since there is not one central BNPL provider. You could have three payments, for three different amounts, going to three different companies.
  • Difficulty of Managing Multiple Payments: When purchasing an item using BNPL, the payments typically start immediately and spread out over four installments. Suppose you use BNPL to buy three different items on different days. Each will typically have four installments. That leaves you with 12 separate payments to manage. This can quickly become confusing and tricky to stay on top of.
  • Costly Fees: While BNPL lures you in with the promise of no fees or interest, that is only true if you make your payments on time. Using the example above, imagine trying to make 12 payments on time while also managing your daily finances. It can become extremely difficult. Missing one payment can result in costly fees. And, since there are no regulations, companies can charge whatever they decide is fair.
  • Psychology Factors: The BNPL structure is a mental game. By breaking the price into smaller amounts that you can repay over time, your mind believes the purchase is more manageable. However, you should always ask yourself, “If I cannot afford this item now, will I be able to afford it over the next several weeks?”
  • Effect on Credit Score: Although some BNPL programs may not rely on your credit score for approval, they often report missed payments. When you have multiple payments to manage (usually four installments per item), there is a chance that you might miss a payment and damage your credit. Using the example in “Payment Structure” above, managing 12 payments can be tricky. Missing one can cause a domino effect in costly fees and missed payments on your credit report.



Buy Now, Pay Later programs were originally designed for big-ticket items, such as a new washer or dryer. As long as you make the payments on time, it can be a great way to avoid paying interest on credit cards.

When you start using BNPL for everyday purchases, that is when you’re setting yourself up for disaster. With multiple  payments to manage, you can easily fall into a very expensive trap that might severely damage your credit.

Always make sure you understand the rules and potential costs before using a BNPL payment service.

We’re Here to Help!

While BNPL programs can be convenient, they also present risks to consumers. It’s wise to have an emergency fund set up in case managing payments becomes difficult. That way, you can still make the payment and avoid costly fees. One option is an Overdraft Line of Credit connected to your checking account. This provides a safety net in case you’re ever short on funds, or need to make an unexpected purchase. It’s there when you need it.

If you’re interested in opening a savings account for your emergency fund, we’re here to help. Call, chat, text, or stop in M-F 9am-4pm ET – (315) 671-4000.

Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.