When is Buy Now, Pay Later a good idea?

hands counting money

Buy Now, Pay Later (or “BNPL”) has exploded in popularity recently. While each BNPL company’s offerings are different, the most common is a simple zero percent interest installment loan. When you make your purchase with BNPL the cost is split into 4 equal payments with the first due immediately and the remaining payments due over the next few weeks. We’ve got more details on how exactly it works here.

Millions of people use BNPL and more and more financial companies are expanding their offerings to include a BNPL (even Apple offers it now!) But is it a good idea for you, as a shopper? We have a longer list of the pros and cons of BNPL here, but what are the situations when BNPL is a good option for you?

If you don’t have the money to buy something you need in cash, or spending it all at once would drain your savings too low, BNPL can be a good option if you’re sure you’ll be able to make the rest of the payments.

BNPL lets you spread out the cost over multiple weeks with no additional cost in interest or fees. So if you don’t have the money now but you’re sure you will soon (when your next paycheck comes in, for example) then BNPL is a good option. The second part of this is key – you have to have a plan to make the rest of the installment payments, not just the first one due at checkout. This gets more complicated the more times you use BNPL since the payments you owe can stack up and you can end up owing quite a bit at the same time. 

If you have bad credit, or no credit, it may be easier to get a BNPL loan than a credit card. While using BNPL probably won’t help you build a credit history, it can give you access to credit if you need it and can’t qualify for a credit card.

Similarly, if you don’t want to put purchases on your credit card because you don’t want to increase your credit utilization (if you’re in the process of applying for a mortgage, for example) the BNPL could be a short term solution for a loan that won’t appear on your credit report. However, keep in mind that there’s no guarantee that BNPL companies won’t report to the credit agencies, particularly if you’re late or miss a payment. This is a relatively new industry and there isn’t a standard for how BNPL loans are reported….yet.

If you do have the money at the time and spending it all at once won’t deplete your rainy day fund, then paying in cash or with a credit card is probably a better option. If you pay with a credit card (and then pay the card off in full right away) you get additional consumer protections against fraud, you can earn cash back or other rewards, and the returns process is probably easier than it would be with BNPL.

It should go without saying that we’re talking about making purchases for things that you need, or wants that you’ve planned for and built into your budget. One of the biggest risks of BNPL is that it can make it easy to buy more than you otherwise would since it feels like you’re not spending as much.