Pros and Cons of Buy Now Pay Later Services

Buy Now Pay Later services have risen in popularity due to many consumers looking to avoid paying credit card interest and find other forms of credit. These options are quite accessible since most of these services offer payment directly from your bank account as an option. These options were primarily popular among younger generations however they’ve now become a widespread financial instrument, so much so that FICO will soon begin reporting the status of BNPL accounts on credit reports.

Pros:

You get to finance your purchase over a 6-week time period (or longer) with little or no interest payments. This is great because it prevents consumers from having to place additional charges on their credit card and can be a smaller extension of a 0% interest promotional credit card. The service is also great for those that might have little to no credit history.

Cons:

What most don’t realize is that missed payments from services like BNPL will most certainly affect your credit and these services are not very different from a standard line of credit from a credit card company. Although as these services become less new and more dated, the odds increase that interest rates will increase and follow those of similar forms of unsecured lines of credit. Buy Now Pay Later accounts were typically 0% APR at the very early stages but as more customers get onboarded and acquired that will look to change as standard rates start to normalize and companies look to churn a profit. Finally, there could potentially be shared financial data that occurs when you use one of these services, which is especially true when you link your bank account to them. You are missing out on credit card rewards anytime you use a Buy Now Pay Later service.

BNPLs also performs a soft credit check when you utilize their services (although consumers may not fully pay attention to this). The check is relatively standard and performed in the same manner as any other soft credit inquiry.

True Purpose of These Services?

Although there is a convenience factor at play here, these services are just meant to cause consumers to spend more, and in that regard, they are definitely doing their job, this is why they've increased so much in popularity. The problem comes in when consumers purchase something and do not realize the full impact of the purchase on their budget and their subsequent ability to repay. These offers can definitely be enticing for someone who wants to buy something that is definitely outside their budget range and won’t go onto a credit card statement.