Have you ever been shopping online and been faced with a check-out screen, offering for you to pay off your purchase in installments? That means you have been given the option to Buy Now Pay Later (BNPL). A BNPL plan lets you access your purchased item while paying it off over time. It appears to be an easy way to obtain what you need without breaking the bank.

You may think that Buy Now Pay Later advantages make a BNPL program worthwhile. If so, you’re not alone. Many people choose to use a BNPL plan because it sometimes doesn’t require a lengthy application process or a credit check for you to be eligible for a BNPL plan, making it a quick and easy solution if you don’t currently have the funds to pay in full.

Unfortunately, BNPL programs are not always the best option for some situations. We’ve laid out the basics on what a BNPL plan is, how it works, and some things to consider if you may or may not want to commit to it.

Here’s how BNPL works

Let’s say you need to buy all your groceries for the month. When you check out online, you are given the option to make four payments, each spaced two weeks apart, instead of paying the full amount right now. This sounds good to you, so you quickly fill out your name, address, email and phone, maybe your Social Security number, and your credit card number. Now you can go pick up your groceries while knowing that you don’t have to hand over the full amount right off the bat.

These are some of the Buy Now Pay Later advantages that might make it worth your while:

  • Some BNPL loan providers may only conduct a soft credit check before they approve or deny your application.
  • Even if you have a bad credit score or no credit at all, you might still qualify for this loan.
  • The most common type of BNPL plan is the “pay-in-four” model, meaning that you will have four equal payments to make over time. This model may not require you to pay interest fees.

Buy Now Pay Later disadvantages are equally important to know about:

  • Plans that take longer to pay off than a “pay-in-four” model will probably charge interest. Some of these rates can go up past 30%!
  • Other fees can hide in the small print of a BNPL loan, making them more expensive than you may have first assumed.
  • If you are late or unable to make future payments, you will probably have to pay hefty fees.

While it certainly sounds nice to avoid dealing out large chunks of cash all at once, think twice before you sign up for a BNPL loan. Those extra fees can do a number on your bank account, especially if you

aren’t aware of them in advance. See if you can pay in full for the purchase right away, as that is one of the most straight-forward approaches to protecting your money. And it’s always wise to ask yourself: “Do I really need this item?”

Know the common legal risks in BNPL agreements

If you decide to sign up for some Buy Now Pay Later loans, you’ll want to keep an eye out for these problem areas:

  • BNPL plans often have no or minimal protection plans if you need to back out of the agreement.
  • Additional fees can get hidden in the fine print, making it easy for you to overlook them when signing up.
  • It’s easy to accidentally stack your loans, where you take out several loans with different lenders before you realize the consequences.
  • BNPL lenders frequently collect your data so they can learn more about your spending habits, thus making it easier for them to offer you the opportunity to borrow more from them later.

 

Use these tips to protect yourself

Before automatically applying for a BNPL loan, review the terms of the agreement carefully. It may take a while to read all that small print, but it is worth the time in exchange for knowing exactly what you are signing up for. If you see something you don’t like, think twice about whether you really need to take the BNPL route. Maybe you can purchase the item in full now, or simply wait until a later date to buy it when you have the funds.

Make sure you understand the payment plan. Is everything clear and above-board? Do you know exactly how many payments you’ll need to make and when they will be due? You may also want to see if the terms tell you whether the lenders will harvest your data. Are you comfortable with that?

Keep an eye on your credit score to help protect yourself from undiscovered impacts on your credit down the road. An identity protection service like IDShield provides credit monitoring and alerts so that you can watch over your important information.