3 pros and 3 cons of “buy now, pay later”


Learn the potential benefits (and drawbacks) of the increasingly popular “pay in four” programs.

Imagine: You’re shopping online, you enter your credit card, and you’re about to click “complete purchase” on a new $800 laptop. The hefty price tag makes you hesitate, and then suddenly you see it: an option to pay only $200 today and the balance in three installments over six weeks. It’s appealing—this plan softens the blow on your wallet, and the other payments can be made interest-free. Would you do it?

The choice to use “buy now, pay later” programs is a personal one and depends on your unique financial situation. But like any loan or line of credit, there are some cool perks—and some drawbacks. So, is buy now, pay later a good idea? Weigh these pros and cons to help you decide.

What is buy now, pay later?

Though the idea of paying in installments over time is not new (layaway programs have been around for many decades), buy now, pay later programs rose in popularity in recent years. As more people were shopping online, more buy now, pay later providers surfaced at checkout—like Affirm, Klarna, and Afterpay. In 2021 alone, five major providers issued more than 180 million buy now, pay later loans worth more than $24 billion—almost 10 times the amount issued in 2019.1 Studies show 50% of consumers have used a buy now, pay later service.2

These third-party companies divide your purchase into multiple equal payments, with the first due at checkout. The remaining payments are billed to your debit or credit card in weekly, bi-weekly, or monthly installments—depending on the provider’s payment plan.

PRO: Typically zero interest and minimal fees

If you pay over four installments every two weeks (commonly called “pay in four”), most buy now, pay later companies don’t charge interest—so your $800 laptop will really cost $800. Some charge late payment fees, usually between $5 to $10.

CON: Can lead to overspending

It can be tempting to splurge when you don’t see the full impact on your bank account until weeks later. And merchants are hoping you give in to that temptation. “Retailers are jumping on this bandwagon because they can get higher ticket orders than if the consumer has to pay everything at once,” says Dr. Patricia Huddleston, retail strategy expert and professor of retailing at Michigan State University.

Whenever you’re spending money, it should align with your budget and values. So while it may be enticing to buy the latest shoes, gaming system, or couch and pay for it in four interest-free payments, check in with yourself and make sure what you’re buying really matters to you. And if you do make a purchase using a buy now, pay later program, make sure to update your budget to reflect the delayed payments.

PRO: No credit impact upon application

Buy now, pay later companies may perform a soft credit check for new customers when they first sign up, but soft credit checks will not impact your credit score or credit history.

When you apply for a new credit card, a hard inquiry (which can temporarily lower your credit score) is placed on your credit report, even if you’re not approved. This makes buy now, pay later financing appealing, especially if you don’t have a credit card and don’t want to ding your credit score by applying for one.

CON: Negative impacts to credit for missed payments, but no benefits to credit for on-time payments

If you miss a payment or forgo payments all together, buy now, pay later programs may report you to the credit bureaus or to a collection agency, which could then impact your credit. And it’s more common than you may think to miss a payment—33% of consumers using buy now, pay later say they’ve missed one.2

On the other hand, if you pay on time and in full, your diligence won’t bolster your credit, which can be frustrating if you’re trying to increase your credit score. In this case, it might be better to think about using your credit card, where consistently paying off your debt on time and in full can lead to a better score. 

67% of buy now, pay later users think it could replace their credit cards.

Source: “Study: Buy Now, Pay Later Services Grow in Popularity,” The Ascent, July 18, 2022.

PRO: Helpful for large one-time or holiday purchases

Experts seem to agree that buy now, pay later can be helpful in two instances: First, if you need to buy an essential item. Maybe your cell phone breaks and you need to replace it, you need a mattress ASAP for your new apartment, or your refrigerator goes on the fritz. In an instance where you need an essential item and don’t have the money to front right away, paying for it using buy now, pay later can be a great option—if you’re prepared to cover the payments and you’re not overextending yourself.

Another time when buy now, pay later programs may make sense is for holiday shopping. In a 2021 survey, over 45% of 2,000 buy now, pay later users planned to use it for some or all of their holiday purchases.3 “I see buy now, pay later as something to use during the holiday season, when you would traditionally be spending a lot of money and this would allow you to space out your payments over time,” says Huddleston. “But the caveat is that you’d still need to establish a budget and keep to it.”

CON: Carrying debt can impact your happiness

Money and mental health are deeply linked, and carrying debt can be a big contributor to feelings of stress and anxiety. Research shows those who struggle to pay off their loans are more than twice as likely to experience mental health issues, including depression and severe anxiety.5 By simplifying your finances, having a debt payoff plan, and not taking on buy now, pay later loans that you aren’t sure you can handle, you may be able to ease the mental toll of debt.

What’s the verdict on buy now, pay later?

Deciding whether the pros of buy now, pay later outweigh the cons is a personal decision, and there are times when using these interest-free loans can be helpful. Be sure to update your budget—or create one with this budgeting spreadsheet—to reflect any buy now, pay later payments you may owe. Like any time you’re borrowing money, be mindful of the new debt you’re taking on and how it’s going to impact your budget and stress levels in the future. 

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.