Have you noticed lately that when you’re shopping online, there’s a little message telling you how much you could pay if you made payments instead of the full price? Buy now pay later (BNPL) services, such as Affirm, Klarna, Afterpay, and others have exploded in use over the past few years. They work by turning any one-time purchase into a payment plan. 

For example, take a look at this Gap adorable sherpa one-piece for babies. I mean, it has bear ears! So cute! I don’t even have a baby and I want this. It almost makes me want to get pregnant again just so I could buy this. (Husband, if you’re reading this, don’t worry, I don’t want it that bad.) 

But maybe you have a cute little baby who needs this to stay warm in the winter. But you’ve been spending a lot of money lately and it seems like kind of a lot. You could probably dig up something else that would work from your older kids and money’s been tight lately. 

But then you notice a little thing below the “add to bag” button that says “four interest free payments of $10.25 with PayPal or AfterPay. You think: “10.25? I could probably manage that.” And you buy it because $10.25 doesn’t seem as bad as spending $41 right now. 

So you sign up for PayPal or AfterPay, buy the item, and make your four payments over time. Easy, right?

Buy now pay later apps have understandably become quite popular because they are convenient and spread out the payments. As long as you make the payments on time, you don’t pay interest on most of these plans. If you don’t want to use up all of your money at once, it can make sense to try to spread out the payment. In fact, a March 2021 survey from The Ascent found that 50% of people had used BNPL that year. 

The problem is that this might seem enticing, these plans are risky and could get you into a LOT of trouble. 

Problems with Buy Now Pay Later

Buy now pay later programs have some benefits, but they may not be worth the risks. 

1. Their sole purpose is to entice you to buy things you can’t afford. 

Buy now pay later companies make money in two ways:

1. Through fees paid by the merchant. Why would a store/merchant be willing to pay a fee and earn less from a sale? Because they know that you’re more likely to buy something if you can spread out the payments. They sell more that way. 

2. Through fees and interest that you pay when you miss a payment. The Ascent survey found that 33% of people had paid fees for late or missing payments. 

They make money by enticing you to buy more and hoping that you’ll be late on your payments, which ends up being true for a lot of people. 

2. Buy now pay later plans don’t provide you with the same protections as credit cards and returning items purchased with a BNPL plan can be complicated.  

BNPL is easy until it isn’t. If you decide to return something, it isn’t as simple as showing up at the return counter with the item and your credit card. Instead, you’ll need to navigate the store’s BNPL return policy as well as that of the specific BNPL plan you used. 

In addition, credit cards typically offer purchase protection against theft or damage for a period of time, something that is not offered if you use BNPL. 

3. If you can’t make your payment, you’ll incur high fees and/or pay a lot in interest. 

You may think you’re going to pay in full, but many things could happen, preventing you from making your payment on time. Since BNPL plans are designed around enticing overspending, you might find it all too easy to purchase too many things and get yourself into trouble. 

Or, if you lose your job or need to pay for a new water heater or expensive medical procedure, you might find yourself with too many bills and not enough money. 

In either case, high fees and interest rates kick in and you’ll end up paying way more for the item than you anticipated. 

Related: How to Stop Overspending

4. Buy now pay later doesn’t help you build credit and could negatively impact your credit score. 

When you use a credit card, your payment history is reported to credit bureaus. Making on-time payments helps you build a credit history and raise your credit score, which gives you access to things like more credit and lower interest rates. 

Buy now pay later plans DO NOT report your payment history and therefore do not help you build credit and increase your credit score. 

However, if you miss payments on BNPL plans, your credit will be negatively affected. Missed payments are reported and your credit score could go down. 

The same is true of credit cards, of course. If you miss your payments, you’ll hurt your credit. But credit cards, when used correctly can help you build credit, where BNPL cannot. 

5. If things get out of control, you could end up in massive debt. 

The more you use BNPL, the more complicated your finances become. You have to keep track of all the payments you’re making and when they’ll end. And it ties up future resources so you’re more likely to be stuck in the cycle of debt because you can never afford what you have. 

If you want to understand just how bad things can get, check out this heartbreaking story of people using BNPL to pay for food. 

6. If you are always using payment plans and credit to pay for items you want, you have the wrong mindset for getting out of debt and building wealth. 

People who get out of debt and build wealth typically do not buy things that they can’t afford to pay for at the time of purchase. If you ever want to get ahead with your money, you don’t use financing for every puzzle, pair of pajamas, and Playstation game. 

Occasionally, people who have a wealth mindset use financing as a tool for larger purchases, but they are always intentional and don’t just buy things on a whim. 

Don’t credit cards have the same problems as buy now pay later plans? 

Many of the same things could be (and have been) said of credit cards. Merchants pay fees when you use a credit card, they sometimes entice people to spend more, and credit card companies make lots of money off of late fees and interest. Not paying your credit card can negatively impact your credit. 

Although I disagree with Dave Ramsey on many topics, he’s right that credit cards have gotten many people in serious trouble. It is absolutely true that credit cards can make it too easy to buy things you don’t need. In that way, they are similar to BNPL plans. 

However, credit cards don’t have to be a bad thing and can offer benefits, such as rewards, points, purchase protection, convenience, fraud protection, building of credit history, and more. 

When you use credit cards responsibly, they can be very beneficial. This means paying your balance in full every month and not buying things you can’t already afford. Using a credit card responsibly means thinking of each transaction as a direct debit from your account instead of a way to put off paying for something. 

BNPL has no benefit besides spreading out your payments. There’s a lot of risk, and not a lot of benefit. 

Bottom Line

Buy Now Pay Later programs, like Affirm, Klarna or Afterpay are a financial service designed purely to make consumers buy more so that the store and the BNPL company can make more money. They know you’ll buy more when things feel cheaper. People who are smart with their money do not fall for this, and the vast majority of people who use them are at risk of overextending themselves and ending up in a dark hole of debt. 

Even worse, many people are relying on these programs to buy food and necessities, which is an indication of just how bad our social safety net really is. I can’t blame people for using them when it is their only option. But can we please make it so that we’re not forcing people to use services designed only around taking advantage of them? 

In the end, if you need to use these programs because you’re in a tough spot or you want to use it as a strategic one-time thing to buy something big over time, that’s understandable. But you need to be aware of the risks. 

What to do instead of buy now pay later

Ideally, there should be no reason for you to rely on a buy now pay later plan. Financially savvy people are always setting aside money for the things they need and want. They keep extra money on hand for when they need to buy Christmas presents or want to buy some more clothes. They’re always planning ahead for the things they know they will buy. 

Learn how to start planning ahead for random expenses and other things you want to buy in the future here.