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?

Here are some things you should know before you put your next shopping spree on a BNPL app.

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How Do Buy Now Pay Later Apps Work?

Buy now pay later 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.

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Payments are automatically withdrawn from your bank account when they are due. 

Some BNPL apps report to the credit bureaus, but not all of them — although that is changing.

For example, AfterPay, Affirm, and Klarna now report your payments to the credit bureaus. This is a good thing if pay on time, but if you don’t, you’ll risk harming your credit score.

Buy now pay later payment options are accessible through an app on your phone and are integrated with point-of-sale systems like Square. Instead of swiping a card, you can complete payment through a BNPL app or by connecting your account with Apple Pay or Google Pay.

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

• No interest (usually): Most BNPL apps allow you to buy things without worrying about interest charges.
• Fixed installment payments: You can break up a purchase into more manageable payments and know exactly how much you owe on each due date.
• Convenient: Most apps can be accessed right from your phone and have an easy set-up process.
• Accessible: You don’t need a good credit score to qualify for BNPL, unlike with a loan or credit card. 

Cons

• Risk of overspending: According to Bankrate, 56% of users have reported overspending or missing a payment.
• Creates bad spending habits: Rather than saving up for large purchases, BNPL apps make it easy to buy whatever you want, when you want it.
• Late fees: If you can’t make a payment you may be charged a late fee and risk going into debt.
• High APRs: The BNPL apps that charge interest often do so at rates much higher than credit cards.

RELATED: Are Credit Cards Bad to Have and Use?

What You Should Consider Before Using a BNPL App

Before using a buy now pay later app, it’s important to 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 up a purchase in interest-free installments. 

Understand how much interest is being charged, if any, and what the payment expectations are.

READ MORE: What Is APR and Why Does It Matter? 

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.

RELATED: How To Budget for Beginners

Know your goals

Determine if using a buy now pay later app makes 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, but it won’t actually help you build credit.

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.

This offers some of the same benefits as a buy now pay later app, but also helps you build credit or even earn rewards.

COMPARE: Best Credit Cards to Build Credit

FAQs

Are BNPL apps regulated?

According to the Consumer Financial Protection Bureau, BNPL apps fall under the same rules as traditional credit cards, which means they must refund returned products, investigate disputes, and provide fee disclosures.

Does using BNPL affect your credit score?

While some BNPL apps have started reporting your payments to the credit bureaus, not all do. This means using a BNPL app won’t necessarily increase or decrease your credit score. 

However, if you fail to make payments, you’ll likely be charged high fees and your debt could eventually be sent to collections.

Who uses BNPL apps?

Buy now pay later is most popular with younger consumers. These apps are seen as an alternative to credit and appeal to those who may not have sufficient credit history to qualify for a credit card.

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 and they might not help you to build credit.

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

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