buy now pay later

Buy Now, Pay Later: Problems, Drawbacks, Hidden Risks, and Complaints

Have you ever wanted to make an online purchase but didn’t have enough money in your bank account? Well, this situation might be frustrating for the majority of people. A new payment option, however, enables you to order something and pay for it later.

Many online consumers come across this new payment option, which enables them to pay 25% of the total cost of an item up front and the remaining balance in three equal payments over six weeks, all without fees or interest. 

This kind of immediate, cost-free financing, also known as buy now, pay later (BNPL), has grown in popularity due to the pandemic. Some Americans use it to spread out payments for needs, while others use it to purchase expensive goods without paying the full price upfront. 

What Is Buy Now, Pay Later (BNPL)?

BNPL is a form of short-term credit that enables buyers to make purchases and pay for them at a later time, frequently without interest. Point of sale installment loans is another name for these type of payments. BNPL agreements are gaining popularity as a form of payment, particularly for online purchases. Although using BNPL financing can be more and more practical for customers, there are some drawbacks you might need to take into account.

How Does BNPL Work?

Not all BNPL programs are the same. Although each business has its terms and conditions, generally speaking, these programs function as follows:

  • When purchasing at a participating store, you select the option to pay later when checking out.
  • If your loan is approved, you will pay a small down payment of 25% of the item’s entire cost.
  • You will then pay the remaining balance in a series of interest-free installments.
  • You have several payment options, including checks, bank transfers, and automatic withdrawals from your bank account, credit card, or debit card. 

Even though they both require postponed payments, BNPL differs from using your credit card for payments. For instance, you are only obligated to pay the minimum amount due on your monthly credit card when you use it to make purchases. Except if you used a card with a promotional 0% APR, interest is charged on the balance.

While there are no interest or fees for most BNPL programs, they have a set repayment schedule typically only a few weeks or months long. For each purchase, the amount you must pay per pay period is disclosed upfront, and it is generally divided into equal payments.

Additionally, BNPL financing might not be available for all purchases. Furthermore, the amount you can finance in this way might be restricted. Even so, BNPL has significantly increased since 2020 and the development of e-commerce in general, making it an appealing payment method for minor online purchases. 

What Are the Risks of Buy Now, Pay Later Programs?

One concern with buy-now, pay-later plans is that those ostensibly low installments could lead you to overspend. In a poll, nearly half of BNPL shoppers claimed that their spending increases by 10% to over 40% when using these plans as opposed to using their credit cards. Two-thirds of these BNPL customers claim they are purchasing jewelry and other “desired” products that they would not otherwise purchase if they used their credit cards to make their purchases. 

Consumers can also discover that payment plans with installments are far more challenging to follow. For instance, according to research conducted by Cornerstone Advisor last year, 43% of users of BNPL services over the previous two years were late with a payment. Two-thirds of individuals surveyed claimed that they lost track of their payments, not a lack of funds, as the cause of their falling behind.

If the item you bought has a problem, you can also encounter difficulties. One example is getting a refund for a product that didn’t come or was found to be defective. That is because you will need to satisfy the requirements of both the store and the BNPL lender. 

These short-term schemes are also very new and have scant, inconsistent scrutiny from the federal government or financial institutions, in contrast to credit card issuers, which are subject to federal regulation. Most BNPL programs are not as protected for consumers as credit cards because they operate in a legally murky area.

Customers are frequently left on their own to ensure that the merchant fulfilled their obligations and that the BNPL lender credits their account. During a pandemic, these jobs can be more difficult. 

The Things You Need to Know About BNPL Programs

One of the many reasons the federal government’s consumer watchdog agency is looking into BNPL schemes is that they make it simple to finance a purchase, and many consumers sign up for them without fully understanding what they’re getting into.

The credit reporting agencies are aware of the rise in BNPL plan demand during the previous two years. Due to this increase, the bureau launched the market monitoring inquiry, worried about potential consumer misinformation regarding the goods, and a lack of high-quality publicly available statistics on the BNPL market.

  • The fact that BNPL plans are a type of credit and loan is not well known by consumers. Instead, they are referred to as “payment methods” or “money management tools.” One major misconception regarding BNPL plans includes:

Customers may mix up payments because these services are still relatively new, each BNPL provider has its policies, and each payback timeline differs. In a LendingTree study, nearly one-third of consumers admitted that they were unaware of the fees and interest rates before using one of the services to finance a purchase. Furthermore, roughly a third of the participants said they had a solid understanding of BNPL. Because they don’t believe they will ever need to or don’t want to miss a payment, most individuals are unaware of the financial risks and aren’t paying attention to the tiny print terms. 

Consumers might find themselves in financial trouble even more quickly due to the straightforward application and approval processes. There are some safeguards when determining if you can afford to repay the loan given your other obligations because many of these firms do not check your credit reports.

Many service providers charge late fees if you don’t make your payments on time. For instance, Zip charges $5 to $10 depending on your state, whereas Klarna charges $7 for each late payment. Missing payments can harm your credit score even when borrowing from firms like Affirm and PayPal that don’t trust these fees if they report the unpaid loans to debt collectors and credit bureaus and impair your ability to obtain credit in the future. 

How to Use BNPL Programs Without Issues

  1. Be sensible with your spending: Just because your BNPL lender permits you to spend up to $1,000 at once doesn’t mean you should. Scrutinize your spending and income to determine how much extra money you will have. Make sure you stay on track once you know your spending restrictions, maybe by maintaining a detailed list of your intended purchases. Then designate a specific account for those upcoming payments. 
  2. Create automatic payments: The Cornerstone study revealed that most individuals frequently forget to make BNPL expenses. Because these debts are short-term and payable biweekly rather than monthly, it may be difficult to manage many loans. Although some customers might see the late fee as a relatively minor expense, it can contradict the point of using these programs. However, if you pay roughly $30 in late fees for a $100 item, the item’s price will immediately increase by 30%. A $35 overdraft fee may be added if you cannot pay the bill. Automating the entire procedure is the most excellent approach to steer clear of these expenses. Set up reminders for when payments are due through SMS or email, or schedule payments using your bank account or credit card. Specific lenders carry this out automatically.
  3. Check the FAQs for potential pitfalls: There are various buy now, pay later programs. While some do, others do not have fees or interest charges. Thus, if you register with multiple lenders, it is easy to become confused. As a result, you might need to review the loan terms on the lender’s website. These are usually outlined on the FAQ or support page. Alternatively, you might give them a call and ask your queries. 

You’d need to know the answers to a few of the following questions:

  • Would the late fee be automatically applied if you pay a day late, or may you request a waiver?
  • Are you prohibited from making more purchases if you skipped a payment?
  • Will the credit bureau publish any missed or late payments, thus lowering your credit score?

Since some lenders offer multiple financing programs, make sure you understand the regulations for the loan type you’re using. Confirm, for instance, loans of various maturities and interest rates that might change according to the merchant and your credit history. 

  1. Instead, think about using a credit card: Even though BNPL programs can be helpful, using a credit card may be more advantageous in the long term if you make on-time payments on the entire debt. You can improve your credit score by using a credit card, which benefits your whole financial situation. Your purchases can also be eligible for bonuses like cashback or discounts, which could help you stretch your budget. When you use a credit card, your consumer protections are also enhanced. Some issuers may also provide purchase protection, which will pay your costs if the things are destroyed or stolen, in addition to examining disputed charges. 
  2. Use it just for well-known retailers and not for travel: The ideal approach to test out a new good or service is not through an installment payback plan unless you’re spending a tiny sum you won’t miss. If you’re using a BNPL service, you should generally stick with well-known merchants with a reputation for prompt delivery and responsive customer care. You might want to reevaluate these plans for making trip preparations, like purchasing plane tickets. You can significantly meet rigid refund rules when dealing with online travel booking services if your travel plans change or are canceled.

Does BNPL Affect Your Credit Score?

Credit bureaus are actively attempting to improve how this loan information is reflected in credit reports now that BNPL plans have gained widespread acceptance. For instance, Equifax declared in December that it would streamline the method for disclosing these loans and add such information to consumers’ credit reports.

Experian and TransUnion, the two major credit bureaus, have also announced that they will update their credit reports to include more BPNL information. According to Equifax, this will make it easier for lenders to assess whether to provide clients with new credit lines while rewarding BNPL users for their solid payback records. The average FICO credit score of individuals may increase by 13 to 21 points due to this move. 

However, BNPL does not affect your credit score until you miss a payment or your account is turned over to collectors. Even while that could sound worrisome, if you make your payments on time, nothing is disclosed, and you don’t lose any of the benefits of repaying and utilizing these loans properly. Given that the present system penalizes consumers for having multiple new credit inquiries in a short period and favors longer loan terms, credit score models like those run by FICO and VantageScore will also need to adapt.

If you use BNPL, you may apply for up to seven loans at once, which appears as seven new loan applications to standard credit reporting. But in reality, it’s closer to seven charges.  

How to Use BNPL Wisely

If you can secure a zero percent interest rate offer, BNPL plans can be an excellent financial tool for helping you pay for expensive but required products. There can also be a sensible approach to establishing your credit history with less risk shortly, especially with the changing regulations governing credit bureaus considering these loans.

However, before making the needed payments on any type of loan, it is crucial to comprehend all of its terms. Before considering a BNPL plan, you need also consider your other continuing costs, including rent, mortgage payments, and student loans. 

Set up automatic payments and consent to receiving notifications about impending bills because BNPL payments follow their schedules that begin on the day of your purchase. You won’t have to manage numerous costs simultaneously if you do it that way. Additionally, be sure your account has enough money when these services take an automatic payment, or you risk being charged a $35 overdraft fee. 

Call the lender before the due date if you’re having trouble making a payment to discuss your options. While some lenders might grant a short grace period before charging a late fee, others might let you choose to amend or extend the due date or make special accommodations if you lose your job or experience a natural disaster.

Pros and Cons of BNPL Programs

BNPL loans increase your loan but not your credit card debt. Through BNPL programs, customers can spread their goods’ payments without paying interest. Additionally, even if you have been rejected for other loans due to a poor credit score, it is still possible to be approved for this financing. 

They also have no impact on your credit score because they are frequently too minor to be reported to the credit bureaus, whereas late payments might lower your score. The drawback is that, unlike traditional loans, receiving and repaying them does not help you boost your credit score. 


  • They are a practical, organized way to make several small payments over time.
  • The interest rate is frequently zero percent or lower than credit cards
  • No credit history is necessary to be eligible.
  • Quick approval


  • Tracking payments can be challenging.
  • Missing or making late payments may incur late penalties or lower your credit rating.
  • With these transactions, no bonuses or cash back are given.
  • Even if the item is returned, you might still make payments.

Key Takeaway

With BNPL programs, consumers are supposed to be able to acquire the products they require right away while simultaneously receiving a little extra time to pay for them. If you don’t want to pay for anything all at once, buy now, pay later programs may seem enticing.

These loans increase your credit limit without charging high-interest rates, but they also have a repayment schedule, so you don’t accumulate significant ongoing debt. But think about whether the payments are manageable and what consequences you might experience if you can’t make them.

To ensure that you are completely aware of the terms to which you consent, carefully read any BNPL loan’s fine print. Lastly, compare the advantages of BNPL loans to those of other financing options like rewards, credit cards, or personal loans.

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