Older consumers probably remember the layaway plans of days past. The new twist is “buy now pay later” (BNPL) repackaged for instant gratification. BNPL services let you make your purchase and take your items home while you pay for them over time.

Inflation has led more people to turn to BNPL options to help cover the rising cost of goods and services.

In addition, technology has made BNPL even easier with Apps such as Affirm, Afterpay, PayPal’s Pay in 4, Sezzle, and Zip. While it does provide a convenient way to make a purchase, there are some drawbacks. Here are some pros and cons of BNPL programs, and some alternative ways that Members Trust FCU can help you make your purchases.

Benefits of Buy Now Pay Later

• Split up payments – you can break up large purchases into smaller, more manageable amounts that also correspond with your pay periods.
• 0% financing – if you make your repayments as agreed, you typically don’t pay any interest.
• No credit check – some BNPL services do not check your credit before approval.

Risks of Buy Now Pay Later

• Risk of overspending- It’s pretty common for consumers to use multiple “buy now, pay later” services at once. This is a practice known as “loan stacking” and can quickly get out of control.
• Fees – If you miss a payment, you may be charged late fees and/or interest on your unpaid balance. These fees/interest can add up very quickly. If you stop making payments, your account can be turned over for collections and reported to the credit bureaus.
• Overdraft risk – if you schedule automatic payments for your BNPL purchase, you could increase your risk of overdrafts on your credit union account. Make sure you plan carefully and track the funds in your account.
• Missed rewards – If you have a reward debit/credit card, you are missing out on the reward points you could earn by using your card.
• Not building credit – If you’re struggling to get credit due to a lack of credit history, BNPL won’t help since they don’t report on-time payments to credit bureaus. However, if you miss payments, they could send your account to collections, which could end up on your credit report as negative information.
• Lack of protection – BNPL services lack the same regulations and protections as credit cards and traditional lenders, which has allowed them to grow without being held to the same standards or oversight.

What Alternatives do I have to BNPL?

• Credit Cards – using a credit card can help when you are in a bind, but also help avoid overspending. In addition, you could earn reward points that you can redeem for your benefit.
• Personal Loans – this is a great way to establish credit by starting with a small personal loan. Rates on loans are often better than credit cards and you are locked into a fixed term. Plus you are building a positive credit history when you pay off your personal loan over time, which makes getting future loans easier and more affordable. At Members Trust, you can always pay it off early without a penalty.
• Delayed Purchase – this is the safest option if possible. Save up ahead of time and make your purchase in cash. When feasible, this can help you avoid a difficult financial situation.

Read more about BNPL from Experian.

We encourage members to carefully consider payment options. BNPL can be a valuable tool for making purchases but they do come with risks. Alternatively, a personal loan offers a fixed payment schedule and clear terms with the potential to improve your credit. So before you make that next big purchase, choose one that works best for your financial situation.

Reach out with any questions – we’re here to help.