The Real Cost of Buy Now, Pay Later (and Why a Credit Card From a Credit Union Is Better)

4 MIN. READ

 

Key takeaways:

 

• With their low payments and fast approval process, Buy Now, Pay Later offers are tempting.
• However, Buy Now, Pay Later accounts can quickly multiply and become hard to manage.
• Here’s why financing large purchases with a credit card might be better.

Young adults are far more likely to use Buy Now, Pay Later.

These offers make purchases feel a lot more manageable by dividing them into smaller payments, but they often come with a hidden cost.

Let’s take a closer look at Buy Now, Pay Later plans and why charging purchases to a credit card might be the better choice.
 

How Buy Now, Pay Later Gets Out of Hand

Buy Now, Pay Later has become a popular method for making online purchases. These offers typically come with small payments made every two weeks or once a month, and they don’t charge any interest.

Spreading out your purchase doesn’t cost you anything thanks to the 0% interest rate, and you’re getting the things you need or want without depleting your cash reserves.

However, Buy Now, Pay Later can lead to some bad financial habits:
 

• Splitting big purchases into small payments makes them feel more affordable. It opens the door to impulse buys and overspending if you’re not careful.
• Buy Now, Pay Later purchases add up. Before you know it, you’re juggling multiple payments and are at risk of missing one.
• It’s easy to get behind. If you have multiple BNPL payments or experience a loss of income, late fees can add up quickly.
• Don’t let the 0% interest offers fool you. If you fail to pay the full balance before the end of the promotional period, your BNPL provider will typically charge compound interest that can be as high as 36% of the initial purchase.

In short, too many BNPL accounts lead to costly late fees, surprise interest, and make your finances hard to manage.
 

Buy Now, Pay Later and Your Credit Score

As a young adult, building your credit score should be one of your top priorities. You’ll need a good score for milestones like financing your first car or renting your first place.

With Buy Now, Pay Later, you’re not building a solid credit history. Most major BNPL providers don’t report on-time payments to credit bureaus. It means you’re carrying debt that’s not showing up on your credit report.

However, late payments get reported to credit bureaus. If you let BNPL purchases overwhelm you, you could easily lose several points on your credit score before you’ve even had a chance to build it.

It’s one of the many reasons why using a credit card instead of selecting Buy Now, Pay Later at checkout might be a better option.
 

Buy Now, Pay Later vs. Credit Card

Used sparingly, Buy Now, Pay Later offers help spreading out large purchases and can make budgeting easier.
 

• However, it’s easy to get overwhelmed with multiple BNPL plans. Instead, we recommend using credit cards to manage your purchases.
• A credit card consolidates multiple purchases into a single balance. It provides you with better visibility over your spending, allowing you to easily check your balance and monthly payment before deciding whether to make another purchase on credit.
• Charging multiple purchases to the same credit card means you have a single monthly payment. You’re not juggling multiple BNPL payments with different due dates, which reduces your risk of missing a payment.
• Using your credit card responsibly helps you establish a strong credit score. Your credit card provider will report all your payments to the credit bureaus, and you’ll have a strong credit history before you know it.
• Plus, credit cards usually have fraud protection, chargeback rights, and dispute resolution options that BNPL platforms lack.

While credit cards charge interest monthly, you can find cards with low interest and valuable rewards like cashback. Some options even come with 0% interest during an introductory period.

Be Smart About Your Spending With PFCU

As a credit union, our mission is to help you stay in control of your finances and build a future where your financial goals are within reach.

We do this by offering affordable credit cards, including options for young adults. For instance, we have a credit card for students with no annual fees and no credit required.

We also have credit cards with cashback, low interest, and some great balance transfer options if you’re looking into refinancing high interest credit card debt.

Stop by one of our South Florida branches to learn more or contact us online.

FAQs

What’s the downside of Buy Now, Pay Later?

BNPL plans can multiply quickly, making it hard to manage multiple due dates. Missed payments often lead to late fees and high interest rates that can reach up to 36%.

Does Buy Now, Pay Later affect my credit score?

Usually, BNPL providers don’t report on-time payments, but they do report late ones. That means you’re not building credit, but you could still damage your score if you fall behind.

How does Buy Now, Pay Later compare to using a credit card?

BNPL offers split purchases into smaller payments, but managing multiple accounts can quickly get confusing. Credit cards offer the same flexibility with one monthly payment, but they also help you build credit and earn rewards.

What are the benefits of getting a credit union credit card?

Credit union credit cards generally have lower interest rates, fewer fees, and more personal service than big-bank options. They also help you build credit, and many offer perks like cash back, balance transfer deals and low-rate cards for students.