When online shopping, you might have noticed an option to check out with Afterpay, Klarna, or Affirm. These are the most well-known Buy Now, Pay Later providers.  

Buy Now, Pay Later (BNPL) is a way to finance purchases so that you can pay for them in weekly, bi-weekly, or monthly installments rather than paying in total at the time of purchase.  

This system is similar to layaway where purchase payments are split up into more manageable amounts; however, unlike layaway, with BNPL, you get your products upfront and make the payments after.  

Every Buy Now, Pay Later servicer operates a little differently. Some will require 25% of the cost upfront with the remaining 75% split between 3 payments over the following 3 weeks, while others allow for zero-down payments.  

If you’re considering Buy Now, Pay Later, weigh the pros and cons below to see if you should avoid it or not. 

Buy Now, Pay Later Pros & Cons  

Pros 

• 0% Interest Rate: Many BNPL providers offer a 0% interest rate which allows you to pay the total balance without accruing any extra interest.  

• Easier Approval: Typically, BNPL doesn’t require a hard credit check so compared to credit cards, getting approved for a Buy Now, Pay Later program is much easier and doesn’t affect your credit score. 

Cons 

• Multiple BNPL Agreements: Every time you use Buy Now, Pay Later (even if you use the same provider with multiple purchases) you will need to set up new agreements with their own terms and payment due dates which can make it difficult to keep track of all your purchases.  
• Making Purchases You Can’t Afford: By splitting a purchase up into smaller amounts, you may get the impression that the total cost is not as much as it actually is. Although individual payments are affordable, the problem arises when you finance multiple purchases at the same time. If you’re not careful, these payments can add up to more than you’re expecting.  
• Potential to overdraft: Having frequent automatic payments scheduled to come out of your checking account has the potential to lead to overdrafts.  

• Continued Payments Even with Returns: If you choose to return an item that you bought via Buy Now, Pay Later, you may still have to make payments for a bit. While you should eventually get your money back, it may take time for the merchant to let the lender know you returned the item. If the lender hasn’t been informed by the time your next payment is due, you will need to make the payment to avoid the lender marking you missed a payment.  

Whether you should avoid Buy Now, Pay Later is dependent on your financial situation and financial discipline.  

BNPL is a great option as a one-time solution to finance a big purchase such as a piece of furniture that costs a couple hundred dollars. You’ll be able to easily keep track of the term and bi-weekly/monthly due dates since it is only one item.  

However, BNPL could be detrimental to your finances if you get into the habit of financing all your purchases.  

Overall, it’s important to make sure you’re aware of the pros and cons, understand how BNPL works, and make the decision that is right for you.