The Pros and Cons of Buy Now, Pay Later

Buy now, pay later has exploded in popularity recently. These services offer a number of different options for paying with credit but the most common is a zero percent interest installment loan that splits the cost of your purchase into 4 equal payments you make over a period of 6 weeks. If you pay on time you don’t pay any more than the cost of what you’re buying. It sounds a little too good to be true. So we’ve put together a list of the pros and cons of using BNPL to help you understand the advantages and the drawbacks.

Pro: The approval process is easy.

Unlike applying for a credit card, getting approved for a BNPL loan is easy. Just a few quick questions at checkout is usually all it takes.

Pro: No hard credit check.

Not only is the approval process easy, it probably won’t show up on your credit report. BNPL companies usually only do a “soft” credit check, which doesn’t show up on your credit report like a hard inquiry does.

Pro: 0% interest loan

Not all BNPL loans are 0% interest, but the most commonly used ones are. If you need to make a purchase and don’t have the cash then 0% interest is definitely better than the 16-20% interest you’d pay with a credit card.

Pro: Won’t affect your credit (probably)

Since BNPL is relatively new, there isn’t a standard for reporting these loans to the credit agencies. For now, most of the common 6 week installment loans aren’t reported to credit agencies so they won’t appear on your credit report. However, this is not guaranted. BNPL companies usuall do report their more traditional offerings (longer term loans with an interest rate), some are starting to report even their short term 0% loans, and there could be regulations that standardize reporting in the not so distant future.

Con: BNPL encourages people to buy more than they can afford

The main downside to BNPL is the upside for the merchants who offer it as a way for you to pay. It encourages people to buy more than they would otherwise. The merchants pay BNPL companies an estimated twice the fees they pay credit card companies for a reason.

Con: It’s up to you to keep track of what you owe and when.

One BNPL installment loan is pretty easy to keep track of. But if you start stacking them up it can be easy to lose track of how much you’ll owe 2 to 6 weeks from now.

Con: You could owe fees if you’re late or miss payments

0% BNPL installment loans don’t cost you anything in interest, but if you’re late with a payment or outright miss one you can end up owing significant fees. The fees vary by company but they can be up to 25% of the total value of the loan (so if you bought something for $1,000 using BNPL you could owe up to $250 in fees if you miss payments.)

Con: Returns can be difficult

If you buy something with a credit card or cash returns are easy. You return what you bought and you get your money refunded. But with BNPL it can be more complicated. It depends on the terms of your loan, but often you’ll have to contact both the merchant and the BNPL company in order to get a refund. You may have to keep making your installment payments even after your return is in process, and wait until the BNPL company finally approves your refund.

Con: Fewer consumer protections

One of the brights spots of credit cards is the strong consumer protections built in. If you suspect fraud or what you bought isn’t what was advertised, it’s very easy to dispute those charges if you paid with a credit card and get your money back. BNPL loans do not have the same protections so it can be much, much harder to dispute a charge, or get your money back if the seller doesn’t deliver what they promised.

Cons: No “rewards”

Paying with credit cards can earn you rewards in the form of cash back, airline miles, or other perks. BNPL doesn’t.