One-Third of Consumers Who Use 'Buy Now, Pay Later' Services Make This Big Mistake

More and more merchants now offer buy now, pay later (BNPL) financing plans. And more and more consumers are using it. The Motley Fool Ascent found that 50% of Americans have used BNPL, according to its research on average household debt. They use it for all types of purchases, too, as payment amounts range from under $50 to over $1,000.

BNPL can be useful if you need to pay off a purchase over time. Unfortunately, research also found that one-third of the people who use BNPL make a potentially costly mistake.

Pay later, but don't pay late

Among Americans who have used BNPL, one-third have made a late payment or incurred a late fee. Not all BNPL services charge late fees, but some do. For example, Afterpay charges up to $8 and Klarna charges up to $7.

Paying late is problematic for a few reasons. Even though late fees from BNPL plans typically aren't a huge financial hit, they're still an unnecessary extra expense. The biggest benefit of BNPL is that you can pay off your purchase over time without any interest charges. You miss out on those financial benefits if you end up paying late fees. 

It's also possible that the late payment could eventually affect your credit score. Luckily, most BNPL services don't report late payments to the credit bureaus. For those that do, the payment must be at least 30 days late to count against your credit score. But if you go too long without making your payment, the debt could eventually get sent to collections, which will heavily damage your credit.

How much of an issue a late payment is will depend on why you paid late and if you're able to get caught up. If you simply forgot to make your payment on time, that's easily fixable. But if you can't afford to make your payments, that's a much larger issue, and a sign you likely need to reevaluate how you use BNPL.

Be selective about how you use BNPL

BNPL is a convenient way to finance purchases if you can't pay the full amount upfront, or if you just don't want to part with that much money all at once. Many retailers have BNPL readily available as a payment option. Some of these payment plans don't even require a credit check. The convenience also means that it's very easy to overuse BNPL.

Even if you're not getting charged interest, you're still taking on debt and a new monthly payment. That monthly payment is money you won't be able to use for personal finance goals, such as building your retirement fund or saving for a home.

There's nothing wrong with using BNPL, but do so sparingly. When possible, save up the money you need and pay for purchases in full. If you are going to use BNPL, use it for purchases you really need ASAP. For example, if you need a new computer for work because yours broke, that'd be a good use of BNPL. With anything you don't need that urgently, it's better to save and buy it outright once you have the money.