Should You Use Buy Now, Pay Later This Holiday Season?

You've made your holiday shopping list, checked it twice, and found the perfect gifts. There's just one problem: You're a little tight on cash right now. Don't worry. A lot of people find themselves in a similar situation. That's why buy now, pay later (BNPL) services have gotten so popular in the last few years. Below, we'll take a look at how these services work and how to decide if you should use one to pay for your holiday costs this year.

What is buy now, pay later?

Buy now, pay later services are essentially short-term loans. You opt into one of these services at checkout and then you make multiple -- usually four -- payments until you own the item free and clear. The first payment is typically due at checkout and you have a few weeks to make subsequent payments. So if you bought a $200 item, you'd pay $50 at checkout, another $50 two weeks later, another $50 a month after purchase, and the final $50 six weeks after you bought the item. 

BNPL providers vary in terms of what they charge for fees and interest, and some don't charge either. One of the biggest BNPL companies, Affirm, doesn't charge any interest as long as you agree to make installment payments every two weeks. There are also monthly payment options, though these have a different fee schedule.

Since it's a loan, you will need to provide your Social Security number so the BNPL company can verify your eligibility. But it's often possible to get one of these loans with fair or poor credit. And since most of these companies only do soft credit checks, they won't hurt your credit score unless you fail to make your payments.

All of this makes BNPL an appealing alternative to credit card payments for those without a lot of cash to spare. You usually have six weeks to pay the item off in full with BNPL before your balance starts accruing interest or fees. With a credit card, you may only have a couple weeks, depending on when in your billing cycle you make your purchase. And if you can't pay it back in full when you get your bill, your balance could swell quickly due to interest charges.

Is buy now, pay later right for you?

Whether buy now, pay later makes sense for your holiday shopping depends on how you plan to use it. If you only need it for a few big-ticket items and you're good about keeping up with your payments, it might work out just fine for you. But if you worry you might not be able to pay it off in time, you might do better with a 0% APR credit card. Or you could try saving up for the purchase over time or using a layaway service.

If you decide to go with a BNPL service, make sure you familiarize yourself with the terms before you commit. Understand when and how you'll be expected to make payments and what fees the company can charge you if you're late. If you have any questions, reach out to the BNPL provider for clarification before you agree.

Be sure to keep track of how many items you buy with BNPL to ensure you're not overstretching yourself. It can be easy to lose count, especially if you're shopping on multiple websites. Write down how much each item was, what your payment amount is, and when each payment is due so you don't forget.

If you don't think BNPL is a good fit for you, there are plenty of alternatives out there. Weigh all your options before deciding which is the best course of action for you.