Is It Worth Using Buy Now Pay Later Apps?

Do you remember when stores offered layaway? Instead of checking something out you’d take it to the back of the store and set up a payment plan. After your layaway was paid off, you could take it home.

Buy now pay later (BNPL) apps are similar to layaway. They make large purchases more affordable, but are they worth using?

How Do Buy Now Pay Later Apps Work?

BNPL apps are mini installment loans that offer short-term financing for purchases. They are a way to buy something now and pay it off with smaller payments over time. Popular BNPL apps include Afterpay, Klarna, Sezzle, and Affirm.

The apps are integrated with point-of-sale systems like Square. Instead of swiping a card, you pay through an app or by connecting your account with Apple Pay or Google Pay.

Unlike a credit card, many BNPL apps don’t charge interest — although some do. Payments are usually made every two weeks or monthly, and some apps allow you to choose your payment amount and frequency. 

Payments are automatically withdrawn from your bank account when they are due. 

Do BNPL apps affect your credit score?

Some BNPL apps, such as AfterPay, Affirm, and Klarna, report to the credit bureaus. But not all of them do— although that is changing.

This can be a good thing if you pay on time, but if you don’t, you’ll risk harming your credit score.

RELATED: Are Credit Cards Bad to Have and Use?

Pros and Cons of Buy Now Pay Later Apps

BNPL apps can be great for large purchases, but you could risk falling into debt if you’re not careful with them.

Pros	Cons
Convenient: Most apps can be accessed right from your phone and have an easy setup process.	Risk of overspending: According to Bankrate, 56% of users have reported overspending or missing a payment.
Accessible: You don’t need a good credit score to qualify for BNPL, unlike with a loan or credit card.	Creates bad spending habits: Rather than saving up for large purchases, BNPL makes it easy to buy what you want when you want it.
Fixed payments: You can break a purchase into more manageable payments and know what you owe on each due date.	Late fees: If you can’t make a payment, you may be charged a late fee.
No interest (usually): Most BNPL apps allow you to buy things without worrying about interest charges.	High APRs: The BNPL apps that charge interest often do so at rates much higher than credit cards.

What to Consider Before Using BNPL

Before using a buy now pay later app, make sure you understand what you are agreeing to.

Review the terms

Each app sets its own terms. Some apps charge interest while others allow you to break a purchase into interest-free installments. Know how much interest is being charged, if any, and what the payment expectations are.

Set your budget

Review your budget to make sure using a BNPL app makes sense for you. It can be a good option for a large expense like a couch or a new computer, but it might not be wise to use BNPL to go on a spending spree.

Know your goals

Does using BNPL make sense for your long-term goals? For example, do you want to build credit for the first time or rebuild your credit? A BNPL app might be a good alternative if you don’t qualify for a credit card.

If you just want to break up purchases into more manageable payments, a no-interest credit card may be a better option. These cards typically have an interest-free intro period, usually 12 to 18 months.

COMPARE: Best Credit Cards to Build Credit

FAQs

TL;DR: Are BNPL Apps Worth It?

Buy now pay later apps are convenient, especially if you have a low credit score or no credit history and can’t qualify for a traditional credit card. But they can also make it easy to overspend.

Before you jump into using a BNPL app, evaluate your financial situation and spending habits to decide if it makes sense for you.

For more tips on managing your money, check out these episodes of the Erika Taught Me podcast:

• Money & Investing Pitfalls to Avoid
• How To Budget for Beginners
• Get Past Your Money Mistakes