Possible Pitfalls of Buy Now, Pay Later
July 18, 2025 • 8 mins
Article Contents
When shopping at your favorite online store, you might notice a message at checkout inviting you to “make 4 easy payments.” Instead of paying for your entire purchase upfront, you can pay just a fraction of the sale price now. Then, you can make small payments over time to pay the rest.
These loans, called Buy Now, Pay Later (BNPL), are often interest free. While they might sound like a great option, they have downsides.
Before you accept a Buy Now, Pay Later loan, make sure you know what you’re agreeing to, so you can make the best decision
What is Buy Now, Pay Later?
Buy Now, Pay Later is a short-term financing option that allows you to pay for an item in installments over time.
Let’s say you’re shopping for a new coat and spot one you love. It’s perfect, but it costs $500. That’s more than you can comfortably spend. You notice the store offers a Buy Now, Pay Later plan. Instead of paying $500 at once, you can pay just $125 now and then make payments of $28 every two weeks. A BNPL loan requires just a cursory credit check, and you may not pay interest, as you would with a credit card.
Consumers use BNPL to buy everything from clothing to groceries to electronics. According to the JD Power 2025 US Buy Now, Pay Later Satisfaction Study, 42% of Gen X and Gen Y have used BNPL, as have 21% of those in other generations. Not all retailers offer BNPL, and those that do may exclude certain items, such as gift cards or luxury goods.
While BNPL can be a useful tool in some cases, there are risks. If you don’t make your installment payments on time, most BNPL lenders charge a late fee, and those late fees are rising. LendingTree research showed that 41% of people who used Buy Now, Pay Later made at least one payment late in the last year, up from 34% the previous year. Straggling payments could also affect your credit score.
Finally, while many BNPL plans don’t charge interest, some do. So before using this type of loan, it’s important to read the fine print.
How do lenders who offer Buy Now, Pay Later make money?
Retailers partner with BNPL companies such as Afterpay, Affirm, and Klarna to offer their customers a Buy Now, Pay Later plan. These fintech companies may not collect interest on a BNPL loan, and they don’t charge a fee unless a shopper makes a late payment.
They do charge the merchant a fee for each transaction, which generally ranges from 1.5 to 7% of the purchase amount (compared to 1 to 3% for credit cards). Many merchants are willing to pay such fees. One reason is that offering BNPL attracts new customers, especially those who dislike using traditional credit — such as Zoomers and Millennials, who grew up in the wake of a recession — and those who don’t qualify for a credit card. Another reason is that BNPL helps prompt many customers, new and old, to make a purchase.
How will using BNPL affect your credit?
When you apply for a loan, such as a mortgage loan or a car loan, the lender does a hard credit inquiry on you, which temporarily brings down your credit score a bit. When you use Buy Now, Pay Later, the lender will not do a hard credit inquiry, so simply using BNPL won’t affect your credit rating.
But what happens if you make late payments? Buy Now, Pay Later lenders haven’t been reporting data to the credit agencies like Equifax, Experian, and TransUnion. So when someone who uses BNPL makes late payments, it hasn’t affected their credit score — but that’s changing.
Effective fall 2025, FICO — the company that determines Americans’ credit scores — will start including BNPL loan payments in its calculations. When lenders run a credit check on you, they will now see your traditional credit score and your BNPL credit score (if you use Buy Now, Pay Later).
If you make your installment payments on time, this could boost your credit rating. (If you’re young, it might even help you qualify for your first credit card.) But if you’re late with payments, it may harm your score. A year-long FICO study found that most consumers— more than 85% — will see their score rise or fall by 10 points or less.
Will using Buy Now, Pay Later cost you more?
Sometimes. Here are some reasons you might end up spending more when using BNPL:
- You don’t make your installment payments on time. If you miss your payment date, you’ll pay a late fee.
- You don’t budget for your installment payments. If your BNPL payments are being automatically withdrawn from your checking account and you don’t have enough funds available, you may pay overdraft fees. A Stanford study of 570,000 people found that those who used BNPL incurred 4% more overdraft fees.
- You use a credit card to sign up for the BNPL plan. On top of the purchase price, you’ll pay interest and fees to your credit card company. When signing up for a BNPL plan, avoid using a credit card.
- Your BNPL charges interest. Fintech company Affirm charges 0 to 36% interest, for example, depending on your credit score.
- You buy more than you normally would. When using BNPL, the small payments might trick your brain into thinking that an item costs less than it does. That can prompt you to start buying things you don’t need. Before long, you’re making payments on several BNPL loans. While shopping, remind yourself that anything purchased with BNPL is debt that needs to be repaid.
Nearly 40% of Americans who have used BNPL say they regret it, having realized that they paid more than they expected to, according to a recent survey conducted by The Motley Fool.
Want a refund? It may be more difficult with BNPL.
If you aren’t satisfied with a BNPL purchase, it may be challenging to get a refund. Buy Now, Pay Later lenders — unlike credit card companies — haven’t been required to investigate your complaint. Consumers have had an especially hard time getting refunds for travel expenses paid for with BNPL plans.
In 2024, the Consumer Financial Protection Bureau reclassified BNPL loans as credit card providers, to give consumers similar rights. But the protections only extend to “pay-in-four” loans — those that are paid in four installments.
Quick tip: limit your loans
A Consumer Reports study found that taking out four or more loans at one time makes you twice as likely to miss a loan payment. Nearly one in three people who use BNPL have lost track of their loan payments, according to Motley Fool Money’s 2025 Buy Now, Pay Later Trends Survey. Their advice? Avoid taking out more than one or two BNPL loans at a time.
Does BNPL encourage spending?
Yes, people who use Buy Now, Pay Later tend to spend more. When shoppers use BNPL, their likelihood of buying something jumps from 17% to 26%, according to Harvard researchers who compared the spending patterns of 75,000 consumers who used BNPL and 200,000 who did not. Also, once a shopper realizes they can use BNPL, their shopping cart grows by 10%.
One reason that BNPL leads to overspending is that it makes expensive items seem more affordable. When someone buys a TV that costs $1,000 and uses BNPL, their initial payment might be just $250. If they had earmarked $1,000 for a TV, they might be tempted to spend that extra $750 they “saved” on something else. So instead of buying a TV, they might buy a TV and some speakers too.
Sources:
Consumer Reports, “What is a Buy Now, Pay Later (BNPL) loan?” May 21, 2024.
The Atlantic, “The ‘Buy Now, Pay Later’ Bubble Is About to Burst,” January 10, 2023.
JD Power, “More Consumers Using Buy Now Pay Later, JD Powers Finds,” February 27, 2025.
The Motley Fool, “2025 Buy Now, Pay Later Trends Study,” May 29, 2025.
FICO, “FICO and Affirm Unveil Industry-Leading Analysis of ‘Buy Now, Pay Later’ Loans,” February 4, 2025.
Harvard Business Review, “Research: How ‘Buy Now, Pay Later’ Is Changing Consumer Spending,” November 26, 2024.
Forbes Advisor, “What Is Buy Now, Pay Later?” February 25, 2025.
MoneyTalks News, “5 Surprising Facts About Buy Now, Pay Later,” December 4, 2024.
Affirm, “How to Pay: Take Affirm just about everywhere,” accessed July 7, 2025.
NPR, “The pros and cons of clicking that option to ‘pay in 4 easy installments,’” March 13, 2025.
Apple, “Apple introduces Apple Pay Later to allow consumers to pay for purchases over time,” March 28, 2023.
FICO, “FICO Unveils Groundbreaking Credit Scores That Incorporate Buy Now, Pay Later Data,” June 23, 2025.
Stanford Business, “The Hidden Cost of Clicking the ‘Buy Now, Pay Later’ Button,” February 2, 2024.
Consumer Reports, “Buy Now, Pay Later Loans From Affirm, Afterpay, and Uplift Are a Risky Way to Pay for Flights, Hotels, and Cruises,” January 4, 2025.
US Chamber of Commerce, “The Pros and Cons of Buy Now, Pay Later for Small Businesses,” accessed July 2, 2025.
NPR, “Who actually pays with buy now, pay later companies like Klarna and Affirm?” June 12, 2022.
Associated Press, “ ‘Buy now, pay later is more popular than ever. It can cost more than you think,” November 27, 2024.
This article was created in accordance with the Patelco editorial policy.
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