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Buy now, pay later plans can be an attractive way to finance a purchase with fixed payments and, often, 0% interest. Much less appealing, however, is the stress of buying now only to discover you can't afford to foot the bill later.
If you can't make your buy now, pay later (BNPL) payment on time, you may incur late fees or interest charges, among other consequences. BNPL terms vary among different providers, so it's important to carefully read your plan's terms before applying to know what you'll owe and when. In addition, you'll need to look ahead at your budget to ensure you'll be able to afford your payments and then earmark the funds to avoid ending up in a bind. If you're approaching a BNPL payment that may be difficult to afford, you'll need to consider your next steps.
How Buy Now, Pay Later Services Work
Buy now, pay later plans, also called point-of-sale loans, are a financing option that lets you make a purchase and pay for it over time. Among the reasons for BNPL's increasing popularity include the ability to stretch out payments while avoiding interest, minimal eligibility requirements and convenience.
You can find BNPL at checkout when shopping online, through mobile apps that function like digital wallets and in person at many stores.
Applying for BNPL typically requires you to provide identifying information and consent to a soft credit check, which won't hurt your credit scores. You'll also be asked to link your bank or a debit card when you register. Once you've used a service, applying for additional BNPL plans with the same provider typically requires you to simply input your phone number and wait a few seconds for a decision.
Once you finance a purchase with BNPL, you're responsible for making on-time payments. A typical payment plan requires you to pay 25% down and then three remaining 25% payments every two weeks, but payment structures vary.
Consequences of Missing a Buy Now, Pay Later Payment
The consequences of missing a BNPL payment vary from service to service, so it's essential to know a provider's terms before you apply. Common steps BNPL services take when payments are missed include:
- Charging a late fee
- Charging interest on the unpaid balance
- Turning over your account to a collection agency (if you stop paying on the account), which could hurt your credit
- Not allowing you to make future purchases with the plan
If you can't make your BNPL payment, you could face one or more of these consequences.
How to Avoid Missed BNPL Payments
While the perks of spreading out your purchase without interest are clear, saddling yourself with payments that don't fit into your budget can lead you into a distressing situation.
If you've already financed a purchase with BNPL and you can't afford the payments, consider some options for finding extra funds. Cut discretionary spending down to the bone, look for ways to lower your expenses or consider finding a temporary gig to bring in more income.
To avoid being short on funds when your BNPL payments come due, stick with these best practices:
- Carefully read the BNPL terms. BNPL policies vary, including how collections are handled if your account enters delinquency. Before you apply, understand the service's policies and any applicable fees, and have a thorough understanding of when payments are due.
- Check your budget. Avoid overspending by getting clear on your spending limits upfront. As with other types of debt, it's easy to assume that the next payday will free up funds; but as cash flows in, so do essential expenses like your housing payment and utility bills. If you get to your next payday and find that the fridge needs to be stocked, the tank needs to be filled and you owe a BNPL payment, money can suddenly feel tighter.
- Put payment dates on your calendar. To avoid missing a BNPL payment, set up autopay and then add the due dates to your calendar. Consider adding a reminder to earmark funds on your next pay date so that you don't eat into what you owe before the payment hits.
- Avoid taking on multiple loans. One common debt spiral entry point is taking on multiple loans from different lenders, and the same applies for BNPL plans. There isn't an easy way to track multiple payment plans if you use different services simultaneously. That can get overwhelming fast, and experts say stacking BNPL loans makes missing payments and doing damage to your finances more likely.
The Bottom Line
While BNPL can be a convenient way to buy what you need, it's always important to know the terms before you apply for a payment plan and then budget for repayments. You can also consider alternative financing options, such as an intro 0% APR credit card, which can offer some of the same perks as BNPL. Your credit score determines what you'll qualify for. Check your credit score through Experian to understand how your score impacts your ability to qualify for credit.