The Dark Side of Buy Now, Pay Later

A photo to accompany a story about buy now, pay later services Getty Images/Maria Golenishcheva
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You’ve probably seen Affirm, Afterpay, and Karma pop up as payment methods when you’re about to purchase items from your online shopping cart. 

They’re the big companies behind the latest fad in retail: Buy Now, Pay Later. 

And they’ve exploded in popularity over the past two years. In fact, I wrote about this trend around the holidays last year, and BNPL has just continued to grow since then.

BNPL plans are touted as a way to pay for purchases in installments over time, typically without interest. One company says on its website that you can “enjoy the flexibility to shop what you love,” while another promises that it’s “just a more responsible way to say yes to the things you love.”

But what consumers may not realize is that BNPL plans are all about instant gratification, says Carrie Rattle, a financial therapist in New York who focuses on clients’ overspending habits. 

These plans essentially remove any barrier that discourages consumers, especially younger ones, from clicking the “buy” button. And they appear when we’re most vulnerable. “When losses are pushed out over weeks or months, they seem like less. It’s [a] perception of greater affordability that is not reality,” Rattle says. 

That’s why experts are sounding the alarm over BNPLs and the dangers that come with them, including credit hits from missed payments, late fees, and more. And one expert, in particular, thinks consumers should stay away from them.

Farnoosh Torabi, a former contributor to NextAdvisor and editor at large at CNET (which is under the same parent company, Red Ventures), recently called out BNPLs in her weekly column So Money Hot Mic, saying she’s added them to her “ever-increasing folder of junk money products.” Torabi also talks about this in her So Money podcast, in which I recently went on to discuss Biden’s student loan forgiveness plan

“BNPL plans are fraught with financial pitfalls,” Torabi writes. “These plans don’t reward you with credit score boosts for timely payments. Instead, most will just ding your score if you ever pay late. BNPL late fees also tend to be much higher than what credit cards charge, according to a Harvard paper.” 

BNPL plans are a fast-growing form of debt, so you need to be realistic about what you can afford if you’re using them. Make sure to review your budget, the exact costs involved, and have a repayment strategy in place. That way, you’ll be able to pay off the loan in time and avoid interest charges, late fees, or any negative credit effects.

If you suspect you won’t be able to pay for an item in full within the installment period (typically four payments), Torabi says you should “think twice about using a BNPL plan.”

The Bottom Line

Know what you’re agreeing to before you buy. Buy now, pay later plans can be an effective way to spread out the cost of a large purchase over time, but they also make it easy to impulse buy items that you can’t actually afford.