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Are 'Buy Now, Pay Later' Options a Smart Move?

By Michele Harris
October 18, 2023
woman with laptop

Nowadays, customers shopping at major online and in-person retailers often receive buy now, pay later (BNPL) offers, which break up the cost of a purchase into multiple installments. 

Keep an eye out for offers from services like Affirm, Afterpay, Klarna, PayPal, and Zip. Major credit card companies like Mastercard are also coming onto the BNPL scene. 

Know the rules

Typically, a BNPL plan splits a purchase into four installments. You pay 25% of the purchase price at check out, and the three remaining payments are due over the next six weeks. In most cases, these plans do not charge customers interest or fees if each payment is made by the due date. 

However, if you miss a payment or make a late payment, you will encounter fees and, in some cases, be charged interest. Because each plan has its own set of rules and requirements, it's a good idea to compare offers before accepting one.

Some plans break a purchase into smaller payments over a more extended period, but those plans may also charge interest that can range from 9.99% all the way up to 29.99%. 

Because BNPLs are essentially short-term loans, some plans do run a soft credit check when you apply. However, unlike traditional credit checks, a soft credit check will not impact your credit score. 

Potential fees

Even if a BNPL plan is interest-free, you should know what fees are involved. Most plans charge between $5 and $10 for each late payment. Some plans also charge a fee if you make a payment with a credit card rather than from a bank account. 

It's also important to note that returning merchandise purchased through a BNPL service can be complicated. Refunds for returned items will come from the service--not the retailer--so it can take longer for a credit to appear on your account.

Use when necessary

While using one of these plans can help you manage a large purchase over time, it can create financial stress, especially if you're uncomfortable with how much you are spending. 

So, consider BNPL as a good option for unexpected emergencies, such as replacing a broken appliance or some other unforeseen but essential expense, rather than as a way to make an extravagant or unnecessary purchase.