In today’s fast-paced world, “Buy Now, Pay Later” (BNPL) services are becoming more popular, offering an attractive alternative to credit cards. A recent report from the Consumer Financial Protection Bureau highlighted the growth of BNPL loans in the U.S., with the number of loans surging from 16.8 million to 180 million between 2019 and 2021. This surge underscores the appeal of BNPL services for many consumers.
The Appeal of BNPL
Services like Affirm, Afterpay, and Klarna allow you to buy what you want immediately and pay for it over time, eliminating the need to wait for your next paycheck or save for months. The option to make interest-free payments can feel like a smart financial move, especially when money is tight. For instance, you could spread the cost of a $200 coffee table over four payments of $50, making it easier to manage within your monthly budget. But as convenient as this might sound, some important details must be considered.
The Hidden Costs of BNPL
While BNPL can seem like a good solution for managing expenses, it’s important to be aware of potential downsides:
- Falling Behind on Payments: According to LendingTree, nearly 47% of BNPL users have paid late on at least one loan, up from 40% in 2023. Late payments can trigger fees, increasing the total cost of your purchase.
- Impact on Credit Score: Some BNPL providers report payment history to credit bureaus. Missing payments could negatively affect your credit, and not all providers report positive payment history, meaning timely payments might not boost your score.
- Risk of Overdrawing Your Account: BNPL services often require automatic payment access to your checking account. If you forget about a payment or overspend, the provider can still withdraw funds, potentially leading to an overdrawn account and additional fees.
- Accumulating Debt: BNPL services make spending easy, which can encourage unnecessary purchases. Over time, these manageable payments can lead to mounting debt, making it more challenging to achieve your financial goals.
Finding a Balance
To enjoy the convenience of BNPL without the financial pitfalls, it’s essential to use these services responsibly. Treat BNPL like any other form of credit and ensure you can afford the payments without straining your budget. Avoid using BNPL for impulse purchases, and always read the fine print to understand potential fees or penalties.
If you’re struggling to manage your BNPL payments, People Driven Credit Union is here to help. We partner with GreenPath Financial Wellness, a trusted nonprofit organization offering certified financial experts to help you stay aligned with your budget and long-term financial goals.
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Interested in learning more about managing your debt? Check out GreenPath’s free recorded webinar on their Debt Management Program (DMP). You’ll learn what a DMP is, why you might choose one, and how GreenPath supports you throughout the process.
