The Promise and Perils of Buy Now, Pay Later

Buy now, pay later (BNPL) programs almost seem too good to be true. You can walk away with that overpriced exercise bike, entertainment system, sectional sofa, or anything else that caught your eye without having the money to pay for it now. And there are almost no eligibility requirements to qualify.

Puzzle pieces with the words Buy, Now, Pay, and Later printed on them

How BNPL works

You’ll find a BNPL button when checking out at most online retailers. This option will typically link you to a BNPL service, such as Afterpay, Affirm, or Quadpay. Brick-and-mortar stores may also offer you buy now pay later options, which are also managed through a third-party affiliated like the examples above.

If you choose to purchase through a BNPL option, a soft credit check may be performed to confirm your information. Once approved, you can choose to link your debit card, checking account, or credit card so the app can collect your installment payments. Next, you’ll generally make a 25% deposit on the purchase, and the item is yours! Most BNPL plans require you to pay off the rest in three fixed installments, but payment schedules can vary.

When to choose BNPL

BNPL programs can be a good choice for items you urgently need, but can’t afford right now, like medical equipment that’s not covered by insurance. It can also be ideal for workers with an uneven income flow who may experience lean times of the year but know that better cash flow is ahead.


Why BNPL can be a bad idea 

Installment payment plans encourage overspending. It’s easy to think that, if you’ll only be paying a small part of the price today, why not buy it now instead of financing the full amount?

Missed payments are penalized. Some services slap an interest charge on your outstanding balance, with rates as high as 40%. Other programs will charge a one-time late fee, which can be as high as $39. Others will tack on an extra fixed fee to all subsequent payments.

It can kill responsible financial habits. If a consumer has purchased multiple items through BNPL programs, the monthly payments won’t be so minimal. The payments will need to be factored into a budget and can eat into other categories, like savings.

Buy now, pay later programs may be convenient, but they also present risks. Our best advice? Use with caution.