With holiday shopping in full swing, you may see Buy Now, Pay Later (BNPL) options when checking out online. This credit option is offered for items like clothing, electronics, furniture, exercise equipment, and more. Before you choose this deferred payment plan, there are a few things you should know.

What is Buy Now, Pay Later?

BNPL is a deferred payment option that generally allows you to purchase something with little to no upfront payments. This is followed by payment installations for a set period time (weeks or months). They may offer low, or interest free payment plans with no credit card required, but they are not without their risks.

How Does it Work?

The general price range when BNPL is offered can range from less than $100 to several thousand dollars and is offered when you are checking out online or in app. If you select at BNPL option at checkout and it’s approved, your purchase will be sent to you and the cost will be split into a payment schedule. Usually, the payment scheduled is split into four fixed payments made in a bi-weekly or monthly schedule until it is paid in full. BNPL payments take just minutes.

BNPL companies differ from credit card companies and other consumer loan lenders because they often do not conduct a hard credit inquiry when you apply. Their terms simply require that you be at least 18 years or older, have a mobile phone number, have a debit or credit card to make the payments, and that you validate your identity.

When is it Best to Use BNPL?

The BNPL process may seem straight-forward and convenient but there are several things you should keep in mind before hitting “purchase.”

Know Your Finances

Getting what you need or want now, and paying if off later can seem quite tempting, however, BNPL programs can increase your likelihood to overspend. BNPL options are used best when you have a good understanding of your finances and are confident that you can afford your purchase. If you need assistance building a budget to better understand your purchases, reach out to feel free to reach out to one of our representatives to see how we can help.

Understand Credit-Reporting

Hoping to help your credit by using BNPL? Not all BNPL providers report to consumer reporting companies like a traditional credit card would. If you are looking to use a deferred payment method that helps build your credit profile, using a traditional credit card may be a better option for you than using Buy Now Pay Later.

While many BNPL companies don’t report or check credit, some do. Make sure you read the terms of the program before signing up to avoid hurting your credit.

Avoid Late Fees

While many BNPL companies don’t charge interest, most do charge late fees. Carefully review your terms and conditions to see what their late payment policy is before deciding to use BNPL. Some late fees may cause you to be blocked from future purchases until the payment is made or could even be sent to a debt collector.

Protect Your Products

BNPL may seem similar to using your credit card, however there are some key differences, one being the protections offered. Many BNPL companies do not offer the same protections as credit cards do and cannot protect you if the item is faulty or a scam. If you’re unsure you’ll love your purchase, BNPL may not be the best option for you because BNPL can also make returns more difficult. Always, make sure to read the merchant’s specific return policy to avoid complications.

Check the Reviews

Still deciding if a specific BNPL service is for you? Read their reviews to hear about other customer’s experiences. This can be particularly helpful to learn about disputing charges or making returns.