3 Things That Should Make You Think Twice About 'Buy Now, Pay Later' Plans

These plans might seem convenient -- but they have their pitfalls.

A few years ago, you may not have been familiar with the concept of "Buy Now, Pay Later" plans, or BNPL plans. But more recently, those plans have seen major adoption and growth.

Here's how these plans typically work:

• You apply for a plan at the time of a purchase (either online or at a store) and make a down payment on the item you're buying.
• You then pay off that item in equal installments over a short period of time, usually 12 weeks or less.
• If you stick to your payment schedule, you'll get to spread out your payments without incurring interest on them.

The upside of using BNPL plans is you won't automatically incur interest charges for paying for your purchases over time. Credit cards, by contrast, slap you with interest charges the moment you carry a balance forward (unless you happen to have a 0% introductory APR card, in which case you can avoid accruing interest, but only for a preset period of time).

Despite that benefit, BNPL plans have their drawbacks. Here's why you may want to think twice before signing up for one.

1. They're almost too easy to qualify for

When you want to open a new credit card, you need to apply and have your application and finances vetted before you're approved. BNPL plans don't impose those same standards. In fact, you generally will not be subjected to a credit check when applying for a BNPL plan. And while that might seem like a good thing, it may not be.

If your credit score is in poor shape, it may be because you've struggled to manage your payments and expenses. If that's the case, perhaps you shouldn't be taking on yet another debt payment.

2. You'll accrue interest and fees if you don't stick to your repayment plan

BNPL plans let you avoid interest and fees -- provided you make every installment payment on time. If you don't, interest and fees will apply, the amount of which will depend on the provider you sign up with. If you're going to use one of these plans, it's important you read the fine print before committing to it.

3. Being late with your payments could damage your credit score

If you sign up for a BNPL plan and make your payments under it as you're supposed to, your credit score won't sustain damage. But just as your credit score can take a major hit when you're late with a credit card, mortgage, or auto loan payment, so too can your score sustain significant damage if you're late on your BNPL plan payments. That negative activity will get reported to the credit bureaus and will reflect poorly on you, making it more difficult to borrow money the next time you need to.

To be clear, BNPL plans can be a useful tool in managing your cash flow. And they may be an appropriate, convenient way to pay for larger purchases. At the same time, it's important to understand the pitfalls involved -- and to make sure you're not getting in over your head when you sign up to take advantage of one of these arrangements.