Broker Check

Should you Buy Now Pay Later?

May 30, 2023

Some of us are old enough to remember lay away programs at local department stores, where you’d put a purchase “on hold” and paid off a little each week. Christmas or a big holiday would come and instead of needing to fork out a huge amount of money at once, you could pick up your purchase that had been paid off slowly over time. With no interest.

The modern version of this is Buy Now Pay Later (BNPL) which seems to be an option offered on purchases today. The concept is similar to layaway from the days of JC Penney and Montgomery Wards and gives consumers the option to split purchases into installment payments, usually with no interest. In fact almost 50% in a recent survey[1] said they would like to use the programs to gain more financial flexibility. There is no question these programs are plentiful and available, but just because they are an option, should you use them as an alternative to credit cards or cash?

My advice with this option is the same with any purchase, first ask yourself:

  • Does this make sense to purchase?
  • If you can’t afford it now, can you really afford to buy it all?

If you decide you really can make sense of the purchase and you can afford it, here are 5 tips to remember:

  1. Please, READ the FINE PRINT. Many BNPL programs have hidden fees if you miss a payment. Once you’ve purchased an item, it can be tricky to return and I recommend using them at established retailers so if you do have to return something you will probably have an easier experience. 
  2. Again, you need to figure out why you are using the BNPL option. Is it just to shop and purchases nondiscretionary items? Then, stop and think about if this program is a good fit for your spending behavior.
  3. We see a lot of new grads and those in their first jobs racking up debt with several BNPL payment plans open at once. In the same survey referenced above, 18% of Americans had used BNPL to pay for purchases above $500 in the past 12 months. And of that segment, 29% of the large BNPL purchases were made by Millennials and 19% were made by Generation X, according to FOX Business News.
  4. If you are buying multiple items you have to make sure you are tracking what you owe. Apple recently launched BNPL service option for Apple Wallet or you can check out Nerd Wallet’s round up of apps[2] that support this.
  5. Lastly, make sure you have set up autopay so you don’t miss a payment and, set aside a budget set aside for what you are going to spend