Ever felt the pinch of rising prices and wondered how to keep up without breaking the bank?
According to AP News, the "buy now, pay later" (BNPL) trend is surging among Americans, especially younger folks under 45, as a way to manage purchases from concert tickets to groceries amid economic pressures like inflating and slowing job growth, though experts caution that mismanagement can lead to financial pitfalls.
BNPL services gained traction during the pandemic. They became a go-to for many, particularly young consumers looking for flexibility. About 4 in 10 Americans under 45 have used these loans for entertainment, dining, or essentials, per a poll from The Associated Press-NORC Center for Public Affairs Research.
These loans let you split purchases into manageable chunks, often four monthly payments. They're marketed as low or no-interest, which sounds like a sweet deal. Popular providers include Klarna, Afterpay, PayPal, and Affirm.
BNPL can be a lifeline for those with low or no credit history. Used wisely, it offers a way to build a financial baseline. As one expert noted, it can open doors to other affordable credit down the line.
“It allows you to establish a baseline,” said Michael Savino, Chief Lending Officer at Municipal Credit Union. “(And) get access to other affordable credit options that you can leverage.” This could ultimately boost financial wellness if handled with care.
But here's the rub: BNPL isn't always a free pass. Missing payments can sting with fees, interest, or even bans from future use. And soon, these loans will show up on your FICO credit score, impacting your financial standing.
Juggling multiple BNPL plans can be a nightmare. As Savino warned, “Juggling multiple plans creates a blind spot.” It muddies your debt load and makes repayment dates tricky to track.
“So more loans makes it harder to budget,” Savino added. The more plans you stack, the greater the risk of slipping up. This can spiral into bigger financial stress.
Automatic payments are often required, so keep your account funded. “Make sure your account is funded so payments process successfully,” advised Jennifer Seitz, director of education at Greenlight. One missed payment can derail your plans.
Always dig into the details before signing up. “Understand fees, repayment schedules, and what happens if you miss a payment,” Savino recommended. Don't let fine print catch you off guard. BNPL can feel like a breather, giving you extra time to pay. “It just feels like you’re given a little extra time,” said Sarah Rathner, Senior Writer for NerdWallet. But don’t be fooled by the ease.
“If you miss payments, it can hurt your credit,” Rathner cautioned. Just like any loan, BNPL carries real consequences. Treat it with the same caution you'd give a credit card.
So, how do you use BNPL without getting burned? Stick to one plan at a time, prioritize essentials over entertainment, and track every payment like a hawk. For wealth-builders, frugality is key—don’t let convenience lure you into overspending.
BNPL can be a tool, not a trap, if you play it smart. As Erika Rasure, Chief Financial Wellness Advisor for Beyond Finance, put it, “BNPL can become a coping mechanism.” Use it to manage cash flow, not as a crutch, and you’ll stay on the path to financial liberty.