The One Thing Too Many People Get Wrong About 'Buy Now, Pay Later' Plans

If you've ever signed up for a "buy now, pay later" plan, or BNPL plan, you're not alone. As of 2022, 50% of consumers had used a BNPL plan, according to The Ascent research. And 39% of those who hadn't used a BNPL plan to date said they'd be at least somewhat likely to use one over the following six months.

It's easy to see why so many people find BNPL plans appealing. Unlike credit cards, where you accrue interest the moment you don't pay a bill in full, you don't automatically rack up interest with a BNPL plan. In fact, a big draw of these plans is that you won't spend a dime extra on your purchases as long as you stick to your repayment schedule, which usually has you paying off a given item in 12 weeks or less.

But there's a big problem with BNPL plans consumers should know about. And the sooner you recognize it, the more likely you might be to steer clear of a major trap.

It's a sign you need to walk away

One big misconception about BNPL plans is that they're perfect for people who can't afford their purchases in full. To be clear, they do allow you to buy things you can't afford to pay for in full. But when you have a non-essential item you can't pay for outright based on money in your checking or savings account, guess what? You shouldn't be financing that purchase. Instead, you should be walking away and postponing that purchase until you have the money -- all of the money -- needed to cover it.

To put it another way, you might think that it's no big deal to buy something with a BNPL plan because if you stick to your payments, it won't cost you anything in interest. But that's a pretty big "if."

If you can't afford a given purchase at the time you're buying it, you risk falling behind on your BNPL plan payments. And if that happens, you risk consequences like interest, fees, and credit score damage, since your delinquent payments will be reported to the credit bureaus the same way late credit card payments are commonly reported.

Emergencies are a different story

If you have a purchase you need to make in a pinch that can't be put off, such as replacing an essential household appliance that stopped working out of the blue, then you may want to consider using a BNPL plan instead of a credit card to finance it, provided you think you can keep up with your payments under your agreement. But you shouldn't look at BNPL plans as an opportunity to buy something non-essential you can't otherwise afford.

Even if, in that situation, you do manage to keep up with your BNPL plan payments, you might be putting yourself at risk of falling behind on another bill. So generally speaking, your best bet is really to save up ahead of time for the things you want and resist the temptation to finance purchases that fall into that category.