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28% of Shoppers Plan to Use ‘Buy Now, Pay Later’ for Holiday Purchases. Is That a Mistake?

Written by on November 24, 2022

Clerk in Santa hat manning the register at a store checkout.

Image source: Getty Images

The quick answer? It could be, but it depends on the situation.


Key points

  • “Buy now, pay later” plans let you pay for items in installments without accruing interest.
  • While they may be appropriate for some people, they can backfire on others.
  • Before using a BNPL plan, ensure you will be able to pay off the purchase within the time allotted.

From buying gifts to booking travel, the costs associated with the holiday season can really start to add up. And this year, that might especially be the case due to inflation.

If cash flow is an issue during the holidays, you may be inclined to turn to a “buy now, pay later” plan, or BNPL plan, to cover some of your purchases. These plans allow you to pay off purchases over time — usually in 12 weeks or less — rather than have to pay for them in full right off the bat. And if you stick to your BNPL plan’s payment schedule, you can avoid accruing interest on your purchases.

Credit cards work differently. Unless you have a 0% interest rate on your credit card, if you carry a balance forward for even a month, you’ll automatically rack up interest on it. And so it’s easy to see why BNPL plans might appeal to consumers.

In a recent Momentive study, 28% of people said they plan to use BNPL plans to pay for holiday purchases. But is that a smart idea? Here’s when it is — and isn’t.

When BNPL plans make sense

If money is tight at the moment but you’re confident you’ll be able to stick to a BNPL plan’s payment schedule, then signing up for one of these agreements could make sense. For example, let’s say you want to take advantage of Black Friday and score some gifts on the cheap. You may not have enough money to pay for them in full at that moment. But if your employer has already promised you a holiday bonus in December that will more than cover your BNPL plan purchases, then signing up isn’t such a risky proposition.

When BNPL plans don’t make sense

If you can’t afford a given item and don’t expect to come into a lump sum of cash in the near future, then BNPL plans could really get you into trouble. Let’s say you want to purchase a $500 laptop but you only have a spare $100 in your savings account, and every dollar in your checking account is earmarked for upcoming bills. Let’s also assume your future paychecks are also fully accounted for — there’s no room for extra purchases outside of ordinary bills. In that case, signing up for a BNPL plan is a dangerous move, because where is that extra $400 supposed to come from?

Be careful with BNPL plans

BNPL plans may seem like a convenient way to pay for purchases, but they’re not necessarily the ideal way to pay for holiday gifts and other holiday items. That said, if you’re going to sign up for a BNPL plan, make sure you fully understand its terms before moving forward. Know exactly what your payment schedule looks like, and read up on the repercussions for falling behind.

Just as being late with a credit card payment could cause damage to your credit score, so too could falling delinquent on BNPL plan payments result in a hit to your credit score. And so it’s important to only sign up for a BNPL plan if you understand its terms and are confident you can keep up with your payments.

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