45% of Consumers Will Use 'Buy Now, Pay Later' Services for Holiday Purchases. Is That a Good Thing?

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BNPL plans can be a useful tool -- but could also lead consumers down a dangerous path.

Key points

  • "Buy now, pay later" plans are growing in popularity, and many consumers plan to use them for holiday shopping.
  • It's important to recognize the benefits and drawbacks of using these plans.

It's common for consumers to use credit cards to pay for purchases during the holidays. But there's an alternative to credit cards that's been gaining popularity in recent years -- "buy now, pay later" plans, or BNPL plans.

This year, a good 45% of consumers plan to use BNPL plans to cover some or all of their holiday purchases, according to a recent survey by Cardify. But are these plans worth using? Or do they open the door to nothing but trouble?

The upside of BNPL plans

BNPL plans can be useful in helping you manage your cash flow. That's because they allow you to spread out your payments for purchases over time rather than have to pay for them immediately.

Granted, credit cards technically let you do the same thing. But with a credit card, if you don't pay your entire balance by the time your bill comes due, you'll immediately begin to rack up interest on your purchases, making them cost more. With BNPL plans, you don't accrue interest on your purchases if you stick to your payment agreement, which will generally let you pay off your items over a three-month period or so.

The downside of BNPL plans

BNPL plans may be easy to use and convenient, but the problem is that they could open the door to too much spending. Many BNPL plans do not perform a credit check on borrowers. Now it's easy to argue that's a good thing, since it could make it easier to qualify for the option to pay off purchases over time. But also, it means some consumers who probably shouldn't be financing purchases will inevitably get the green light to do so -- and then risk falling behind.

Just as paying a credit card bill late could result in a major hit to your credit score, so too could falling short on your BNPL plan payments. Plus, you could rack up interest and fees if you fail to stick to the terms of your repayment agreement.

Should you use BNPL plans for the holidays?

BNPL plans could be a good solution if you need a little leeway in paying for holiday items. Imagine you'll need to spend $600 to check off every item on your gift list, but you only have $100 available right now. But -- let's also say you're getting a $1,000 bonus from work on the last day of the year.

In this scenario, BNPL plans are a reasonable solution. If you know you have money coming in to pay for your purchases, but you just don't have it this very instant, then BNPL plans are a great way to spread out your payments without running the risk of accruing interest.

And to be clear, while you could use credit cards in this situation, imagine those bills are due by the second week of December but that bonus won't arrive for another couple of weeks after. In that case, you might accrue interest, whereas you might avoid it with BNPL plans.

All told, BNPL plans can be a useful financing tool both during the holidays and beyond. If you're going to use one of these services, be sure to read the fine print so you understand exactly what you're signing up for and when your payments are due.

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