More Consumers Used 'Buy Now, Pay Later' on Black Friday. Here's Why Some Might Be in Trouble

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  • Some people who shopped on Black Friday couldn't cover their purchases in full on the spot.
  • Those who financed them could land in hot water if they fall behind on their payments, as the penalties can be steep and late payments can hurt your credit score. 

Paying off purchases over time isn't necessarily a good thing.

Black Friday is commonly a popular day to shop. But a lot of people who shop that day don't pay for their purchases outright in cash. Instead, they use different methods to finance their purchases and pay them off over time. 

For some people, that means swiping a credit card. But for others, it can mean signing up for a "buy now, pay later" plan, or BNPL plan. 

In a recent report by PYMNTS, BNPL plan usage increased this year. A good 10.2% of shoppers used a BNPL plan for Black Friday purchases, whereas last year, only 8.2% did the same. And in 2020, just 3.7% of consumers used one of these plans. 

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Clearly, BNPL plans are gaining traction. And they have certain benefits over swiping a credit card. 

But BNPL plans can also end up being costly. And that's something consumers should be aware of.

Be careful with BNPL plans

When you use a credit card to buy something and don't manage to pay your bill in full, you get stuck paying some amount of interest on your purchase. That assumes, of course, you're not taking advantage of a 0% introductory interest rate on a credit card. But those intro rates expire eventually, so in many cases, carrying a credit card balance forward means paying some amount of interest on it.

BNPL plans work differently. These plans don't charge you interest or fees for paying for your purchases over time. They only impose interest charges and fees if you're late with your payments.

Usually, with a BNPL plan, you'll pay for a portion of your purchase upfront (around 25%) and then pay the rest of what you owe over a 12-week period or less. Because you don't get a lot of time to pay off BNPL plan purchases, the penalties can be steep if you miss a payment. And just as problematic is the fact that being late with a BNPL plan payment can cause damage to your credit score, the same way a late credit card payment can bring your score way down. 

That's why it's important to proceed with caution when using a BNPL plan -- and to make sure you can easily swing your payments under that plan. Falling behind could have really negative consequences. 

Read the fine print

Sometimes, consumers get tripped up by BNPL plans because they're not really sure how they work. To avoid that, make sure to read the terms of your agreement if you're signing up for a BNPL plan. This holds true whether you're using one during the holiday season or not. Understanding your payment schedule could help you avoid falling behind and getting slammed with fees and credit score damage as a result.

Another thing to keep in mind is that if you are going to sign up for several BNPL plans this holiday season, you'll need to really keep good track of your various payment due dates. You may want to limit yourself to a single payment plan at a time to play it safe.

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