By Amy Miller, AFC®

Buy Now, Pay Later: What You Need to Know Before You Click “Checkout”

In recent years, Buy Now, Pay Later (BNPL) options have exploded in popularity. On the surface, it appears to be a convenient and budget-friendly option. But is BNPL really that simple? Let’s explore what it is, how it works, and what you should know before using it.

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In recent years, Buy Now, Pay Later (BNPL) options have exploded in popularity. At checkout (whether you’re shopping online or even in-store), you may see an offer to split your purchase into several smaller, interest-free payments. On the surface, it appears to be a convenient and budget-friendly option.

But is BNPL really that simple? Let’s explore what it is, how it works, and what you should know before using it.

What is Buy Now, Pay Later (BNPL)?

BNPL is a type of short-term financing that allows you to make a purchase now and pay for it over time, typically in 4 equal installments. Companies like Affirm, Afterpay, Klarna, and others offer these services, and many retailers now include them directly in the checkout process.

Unlike traditional credit cards, BNPL often doesn’t require a hard credit check, and many plans advertise “no interest” or “no fees.” That accessibility is part of the appeal, but it can also mask risks.

 The Potential Benefits of BNPL

BNPL can be helpful in certain situations:

  • No-interest plans: If payments are made on time, some BNPL loans cost nothing extra.
  • Quick approval: Easier to access than traditional loans or credit cards.
  • Budgeting tool: Breaking a purchase into smaller payments can make it feel more manageable.

For someone with limited credit history, BNPL may also provide access to short-term credit when other options aren’t available.

The Potential Risks to Watch Out For

BNPL can be tricky because it feels less serious than other types of debt. Here are some important things to consider:

  • Multiple loans at once: It’s easy to stack BNPL plans across different purchases, which can quickly become overwhelming.
  • Late fees & penalties: Missing payments may lead to late fees and could affect your credit report (depending on the provider).
  • Limited protections: Unlike credit cards, BNPL may not offer the same dispute or refund protections if something goes wrong with a purchase.
  • Impact on savings goals: Relying on BNPL may keep you from saving for the things that really matter, like an emergency fund or long-term goals.

BNPL & Your Credit

Some BNPL companies report to credit bureaus, while others don’t. This inconsistency can make it hard to know how using BNPL will affect your credit score. In some cases, late or missed payments can damage your score.

That’s why it’s important to treat BNPL like any other debt: track due dates, make payments on time, and avoid borrowing more than you can repay.

Tips for Using BNPL

If you decide to use BNPL, keep these tips in mind:

  1. Check the terms before agreeing. Look for interest rates, late fees, and repayment schedules.
  2. Use it sparingly. Avoid stacking multiple BNPL purchases at once.
  3. Set reminders. Treat BNPL like a bill and mark due dates on your calendar.
  4. Prioritize savings. Don’t let BNPL replace the habit of saving for future needs.
  5. Know your rights. Review your protections under consumer laws and the provider’s policies.

Buy Now, Pay Later can seem like an easy solution at checkout, but remember, it’s still borrowing money. Using it responsibly means making sure it doesn’t interfere with your savings goals or lead to unmanageable debt.

We encourage you to pause before clicking “Confirm Purchase” and ask: Does this fit into my spending and savings plan?

Take the America Saves Pledge today and commit to building strong money habits like saving automatically, planning for major purchases, and managing debt wisely.

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