News & Announcements

Buy Now Pay Later - What you should know

Buy Now Pay Later

“Pay in 4 or Pay Overtime!” “Buy Now Pay Later!” You may have seen these options when checking out of an online store, the ability to make payments on your purchase. You can get what you want now without having to pay for it all upfront, and with inflation pushing prices up, it may seem like an attractive offer.

While this can seem like a convenient way to purchase clothing, appliances or electronics, there are some things you should consider about Buy Now Pay Later (BNPL) and managing debt at the same time.

What is Buy Now Pay Later (BNPL)?

BNPL plans are considered point-of-sale installment loans. Generally, they divide payments for what you buy into several equal payments over time, with the first payment due at the time of purchase.

Since BNPL spreads out payments on purchases you can’t necessarily afford at the moment, it may sound a lot like a personal loan or a credit card but there are a few key differences. BNPL can be interest-free, depending on the terms, as long as you keep up with your payments and pay in full. A traditional credit card charges you interest every month on the balance you carry unless you have a zero percent interest credit card.

But BNPL can become an issue if not managed correctly. While it may seem like a great way to pay, it can add to financial stress and debt. Consumers may not consider the impact that a BNPL purchase will have on their budget and how they are managing debt. Studies have shown, people tend to spend more and increase their impulse buying when using these plans. According to research, nine out of ten shoppers say they frequently buy items that are not on their shopping lists and did not consider those items into their budget.

Also, BNPL lenders may not be looking at the debt you already have. So while they are qualifying you for a certain amount, it may be more than you are able to pay considering what payment obligations you already have.

In addition, consumers are also less likely to comparison shop for the best terms when using BNPL. They are not asking themselves questions like: is there a fixed fee? Does the initial interest rate last the entire length of the loan? Is there a fee for late payments?

Another thing to consider is that a BNPL purchase may not qualify for the same fraud or warranty protections as credit card purchases. And many people miss at least one payment which can mean high fees and damage to their credit score, depending on the terms of the loan.

Since we are discussing credit, you may be wondering how BNPL affects your credit history? These lenders typically don’t perform a credit check, or a hard credit pull (possibly a soft pull is done, depending on the lender) when you apply, which can seem like a plus if you have less than perfect credit or no credit at all. As with other types of credit, 30- and 60-day delinquent payments on BNPL can incur late fees and/or interest depending on the terms. The more delinquent accounts may eventually be charge off and sent to collections, damaging your credit and causing more financial stress.

While BNPL loans are not currently included in credit reports, all three credit bureaus are looking to change how they are reflected on reports. Each bureau though is considering their reporting differently:

TransUnion – They are considering mentioning BUY NOW PAY LATER loans in a separate portion of the credit report. If this idea is finalized, BUY NOW PAY LATER loan history will not be used to calculate credit scores, but will still be included on their credit report.

Experian – At the beginning of 2022, Experian announced it would launch ‘The Buy, Now Pay Later’ bureau. It plans to collect information about the number of outstanding Buy Now Pay Later loans a person has, as well as their total loan amounts and the status of payments. Experian also says they will, “not include information about Buy Now Pay Later loans in their calculation of core credit scores.”

Equifax – Equifax has started allowing Buy Now Pay Later providers to report ‘pay-in-4’ loans. According to an Equifax press release, “The new industry code will classify Buy Now Pay Later tradelines including payment history and give Equifax customers and scoring partners the ability to view and decide how to incorporate the information into their decisioning to potentially open up new mainstream financial services opportunities to more consumers.

When looking at the plans the bureaus are putting in place, it’s unlikely that BNPL will help you build your credit score at this time, but it still could hurt it if payments are delinquent and are turned into collections. Other types of loans and credit cards can help you build a solid credit history if you make your payments on time.

If you’re finding yourself unable to make payments on any of your debt, whether it’s BNPL or otherwise, know that there are people out there that can help you. We partner with non-profit GreenPath Financial Wellness to work with you to find a solution that can help you handle debt and develop a plan to get you on the road to a solid financial future. It’s free and confidential and can help you get on track for a bright future. Call 1-888-337-3399 or sign up for a call here.

We also offer personal loans that can help you payoff any debt. These personal loans may have lower rates and a longer terms to help you get a better handle on your budget. 

- Information from: 8 Things to Know About "Buy Now Pay Later" - 

View All News & Announcements »