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 information, 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. Would you do it?

The choice to use “buy now, pay later” (or BNPL) 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.

Key takeaways:

  • Buy now, pay later (BNPL) services let you make a purchase by agreeing to multiple payments over time. These micro-loans are typically interest-free and fee-free unless you’re late on a payment (more on that below).
  • It’s a popular alternative to traditional credit cards and installment loans, but it comes with risks: Missed payments can hurt your credit score, and research shows that many BNPL users carry more debt than nonusers.Disclosure 1
  • Before using buy now, pay later, consider the potential effect it could have on your personal budget.

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), BNPL loans 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 August 2023 alone, 20% of U.S. adults said they made a purchase using BNPL.Disclosure 1

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, biweekly, or monthly installments—depending on the provider’s payment plan.

PRO: Typically zero interest—but there’s a catch

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. However, many charge interest or fees on late payments, and research shows that in 2023 nearly 26% of Americans who used BNPL services either made a late payment or missed a payment.Disclosure 2

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.

“Retailers … can get higher ticket orders than if the consumer has to pay everything at once.”
—Patricia Huddleston, professor of retailing at Michigan State University

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.

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 altogether, buy now, pay later programs may report you to the credit bureaus or to a collection agency, which could then impact your credit. One study found that, on average, a BNPL user’s credit score is 50 points lower than a nonuser’s credit score.Disclosure 3

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 raise your credit score. In this case, it might be better to think about using a credit card, where consistently paying off your debt on time and in full can lead to a better score

PRO: Can be used for large one-time or holiday purchases

When you need an essential item and don’t have the money for it right away, using BNPL can be an option—if you’re prepared to cover the payments and you’re not overextending yourself. 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.

Buy now, pay later programs are also popular during the holiday season. One survey shows that one in five Americans plan to use BNPL services for their holiday shopping in 2023.Disclosure 4 “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.”

62% of buy now, pay later users think it could replace their credit cards.

Source: “Study: Buy Now, Pay Later Use Declines for Third Straight Year,” The Motley Fool Ascent, August 3, 2023

CON: Carrying debt can impact your financial well-being

Research shows that 41% of buy now, pay later users carry debt from BNPL services, and that BNPL users are more likely than the average American to have higher rates of debt overall. About one-third of BNPL users have reported using a credit card to pay off debt from a BNPL loan—which can potentially add to your debt load and do more harm to your financial well-being. Disclosure 1

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 avoid overloading yourself with debt that can cause financial hardship.

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. Know the risks and 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.