If you’ve shopped online, you’ve probably seen buy now, pay later (BNPL) options at checkout. You may have even used one yourself through a retailer or an app. The convenience of getting what you want now and spreading out payments later is appealing, but the convenience can come with drawbacks.

Before choosing a BNPL option, it’s important to understand the potential risks. Here are four dangers to consider before making a buy now, pay later purchase.

 1. It Can Be Confusing

At first glance, BNPL appears simple. However, it can quickly become complicated if you need to return an item or cancel an order.

Most BNPL loans are managed by a third-party provider, not the retailer itself. If something goes wrong, it may be unclear who you should contact for help: the store or the BNPL company. This confusion can lead to delays, frustration, and unexpected complications, typically not considered when BNPL is presented as a fast and easy option.

2. Your Credit Score Can Be Affected

Missing a BNPL payment or stopping payments due to a dispute can negatively impact your credit.

Until recently, most BNPL loans were not reported to credit bureaus. However, the three major U.S. credit bureaus have announced plans to begin collecting and including this data on credit reports. Just like a missed credit card payment, a late BNPL payment could lower your credit score.

It’s also worth noting that, at least for now, on-time BNPL payments don’t help you build credit the way responsible credit card use can. Before choosing BNPL, be sure to read the fine print and understand how missed or disputed payments are handled.

 3. It Can Encourage Poor Spending Habits

Like credit cards, buy now, pay later options allow you to spend money you don’t currently have. Because BNPL checkout is often seamless and fast, it can encourage impulse purchases you might not really be able to afford. While BNPL is often promoted as a “friendlier” alternative to credit cards, it’s still a form of debt.

It’s also important to think about what you’re financing. Using BNPL for a large purchase like a computer or major appliance may make sense (especially with a 0% interest offer). However, financing everyday items like clothing or household supplies can add up and lead to unnecessary debt.

BNPL providers often target Millennials and Gen Z consumers, who are comfortable with digital payments. But relying too heavily on this option can make it harder to build responsible spending habits.

4. Less Consumer Protection

Unlike credit cards, which are heavily regulated and offer strong consumer protection, BNPL providers operate with less oversight. This can create additional risk for borrowers.

The Consumer Financial Protection Bureau has warned consumers about the potential hazards of BNPL financing. While many providers don’t charge interest, some impose late fees, report missed payments, or turn unpaid balances over to collection agencies.

Get the Facts Before You Choose BNPL 

Buy now, pay later plans can be tempting, but they’re not risk-free.

It’s important to remember that most BNPL providers charge fees for late payments and if you default, the initial loan can become a loan with high interest rates. Before using BNPL, consider how the purchase fits into your budget and what impact it could have on your financial future.

If you have questions or want help managing your finances, reach out to your local branch. Informed decisions today can help protect your financial well-being tomorrow.