Take-Aways From a Buy Now, Pay Later Webinar

Have you recently made a large purchase and been asked if you want to split the payment into several installments? I have when I bought a plane ticket for the 2024 AFCPE Symposium. Buy Now, Pay Later (BNPL) prompts have also popped up for several of my online purchases. 

I recently attended a Next Gen Personal Finance webinar about BNPL. Below are my seven key take-aways:

BNPL Description- BNPL allows consumers to access things that they cannot afford all at once by breaking the full payment into four or more installments. Usually, no interest is charged. Names of leading BNPL lenders include Affirm, Afterpay, Splitit, Paypal, and Klarna. Paypal is the most commonly used BNPL service provider with a 57% market share and Amazon recently partnered with Affirm to roll out customer financing options for purchases of $50 or more.

BNPL Business Model- BNPL is a point-of-sale (POS) loan. Lenders make money from fees paid by merchants that consumers do business with. Merchant fees can be a fixed amount or a percentage of the transaction value. Merchants are willing to pay these fees because the availability of BNPL attracts customers and customers often spend more when they can make installment payments.

BNPL Research Findings- BNPL can encourage overspending. In one study, 59% of BNPL users admitted to using the service to purchase an unnecessary item. In addition, the use of BNPL for “everyday” necessity purchases (gas, groceries, utilities, etc.) rose 434% between 2020 and 2021. The largest demographic group of BNPL users by generation is Millennials, followed by Gen Z, Gen X, and Baby Boomers according to an April 2023 BNPL research report by eMarketer.

BNPL Advantages- BNPL is a convenient way to pay for purchases over time, typically with the click of a mouse when shopping online. There is frequently no interest charged or lower interest rates than credit cards which currently have annual percentage rates around 20%. In addition, a good (670-739) or very good (740-799) credit score is not necessary for BNPL and there is fast approval.

BNPL Disadvantages- Unlike credit cards, there are no rewards, points, or cash back earned on purchases. In addition, payments can be hard to track and payments may continue even if an item is returned. Missing or late payments can result in late fees and may damage a borrower's credit score.

BNPL vs. Layaway Plans- With both BNPL and decades-old layaway plans, the first installment payment is due at checkout with a series of payments that follow at designated time intervals. The big difference is that BNPL users receive the product right away while layaway users typically have to wait until the final payment is made. Not surprisingly, BNPL is far more attractive to shoppers.

BNPL and Credit Scores- Depending on the loan provider, a BNPL loan can increase, decrease, or have no impact on a borrower’s credit score. It is an important factor to consider when using this service. Like late payments on loans and credit cards, a missed BNPL payment can be noted on your credit report for up to seven years. Overuse of BNPL can result in more debt than users can afford.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.