Overview
Buy Now, Pay Later (BNPL) plans reimagine the layaways and installment plans of the early 20th century for the modern-day online shopper. Layaways allowed customers to reserve a product by making a deposit, but the customer would only receive the product after paying the remaining installments. Meanwhile, installment plans allowed customers to acquire a product immediately by paying an upfront fee and making the rest of the payment over installments. BNPL offers an online payment option to purchase a product by paying an upfront fee – usually 25% of the total price – and making the rest of the payments over a series of installments.
Unlike credit cards, BNPL plans do not involve a credit check and are often interest-free, making them more accessible for consumers with lower credit scores.
Below, we will review the risks and benefits of BNPL plans to help you make an informed decision.
Benefit: Easier Approval Process
Nowadays, when shopping online, you may often see a BNPL option at checkout. All it usually takes is a click of a button, and your purchase will likely have been approved.
Risk: Overspending
While BNPL may make it easier to purchase high-ticket items, there is a risk of runaway spending or debt stacking. You may lose track of your purchases and underestimate the cost of the BNPL plans, which can lead to debt accumulation.
Benefit: No Hard Credit Checks
BNPL plans do not require a hard credit check, which means consumers with subprime and near-prime credit scores may more easily qualify for BNPL loans. Hard credit checks can have a negative impact on your credit score, so the absence of a hard credit pull means your credit score will remain unaffected.
Risk: May Impact Credit Score
While successful payments toward your BNPL loan are not reported to the credit bureaus, missed or late payments will likely be reported to the credit bureaus. This would negatively impact your credit score.
Benefit: Ability to Pay in Equal Installments
The major appeal of BNPL plans is the ability to defer the full payment of a product’s price. It makes high-ticket items e.g. furniture or TVs seem more accessible. Payment plans vary from pay-in-4 – payment over four equal biweekly installments – to monthly installments over 3, 6, or 12 months. Always review the terms and conditions to avoid surprises.
Risk: Possible Hidden Fees
While BNPL loans may often be interest-free, not all BNPL loans are interest-free. In addition, missed or late payments can result in additional charges and fees. If you lack sufficient funds in your account to cover a payment, you will likely be subject to overdraft fees as well.
Final Thoughts
BNPL plans can be an option for those wishing to purchase high-ticket items online without a hard credit check. As such, BNPL plans may benefit customers with lower credit scores. However, like any payment plan, BNPL plans come with their own risks and benefits.
If you run out of cash between paydays and need help covering urgent expenses, apply for an installment loan online via Friendly Lender. We don’t check your credit score or credit report during our simple and quick online application process.
If you wish to improve your credit score, sign up for Credit Verify! You will be able to monitor your credit score and automatically detect errors on your credit report.
