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Understanding “Buying Now, Pay Later” Programs August 2, 2022

If you shop online, you probably have noticed an increase in “Buy Now, Pay Later” (BNPL) services. The programs sound enticing but consumers should do their homework to understand the drawbacks before acting.

What is "Buy Now, Pay Later"?
This service is a method to pay for purchases but in installments and is aggressively marketed by app-based financing companies to consumers. It’s not a traditional layaway service, where the retailor holds your product while you make payments until it’s paid in full. For BNPL programs, you get the product first and then make installment payments -- and there is no credit check required.

If you have an expensive purchase, you may wonder what’s so wrong with getting the item first and then making payments? Here are a few reasons:

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Pay Big When Missing a Payment


The provider won't charge you fees or interest if you make all your payments on time. However, if you miss a payment, you can face high-interest rates (up to approximately 30%), which will be charged not on what you owe but on the initial purchase price. You can also face late fees. 

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Costly Penalties


If you pre-pay your loan off, you may also be subject to a fee. If you hope to pay it off sooner, check the fine print.

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Hurt Your Credit


Some of these apps report to credit bureaus even though they don’t require a credit check. In the past, the short-term nature of a BNPL activity would not require a hard pull of your credit and or impact your score. That has changed. Your BNPL activity will now be included in reporting to the three major credit agencies.

Why does this matter? In the eyes of a credit bureau, each time you use BNPL, you are opening and closing a credit account, for each separate purchase. If you use BNPL often, you are creating a potentially negative credit story.

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Cause Overspending

Easily the biggest danger of BNPL is the temptation to overspend and purchase items you didn’t intend to buy. You need to consider whether the purchase is important enough to commit months or years to pay it back.

In addition, returns and exchanges can be complicated, so make sure that you understand the return process before you make your purchase.

Use Caution When Using BNPL Services
BNPL services may offer convenient, interest-free financing without strict approval requirements, but this service also has many drawbacks. It's important to be careful about what you buy, so you aren't taking on debt for items you don’t need. And if you decide to use BNPL, make sure you always pay on time and pay off your purchase in full before the interest-free period ends.

If you have a problem with an installment payment plan creditor, you can contact the Consumer Protection Division at 410-528-8662 or email

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Category: Credit & Budgeting

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