‘BNPL’: Friend or Foe?

By Craig Kirkland, EVP/Director of Retail Banking, Nevada State Bank

If you have made a recent online purchase, you may have been given a BNPL (Buy Now Pay Later) offer. The name is self-explanatory — you are given the opportunity to purchase the item and pay at a future date, often through installment payments. While the service being offered isn’t new, it has grown in popularity with the surge in online shopping. Some of the largest BNPL providers include PayPal, Affirm, Afterpay, Sezzle, Splitit, PerPay, and Klarna, to name just a few. 

Let’s look at some of the pros and cons of using BNPL.

PROS 

● Some may offer zero interest if you make your payments on time 

● Easy application process 

● Does not impact your credit score 

● Flexibility of payments every two weeks or monthly installments for higher-priced items 

● You may be able to get BNPL even with poor or limited credit 

● You can set up automatic payments

CONS 

● There can be hidden fees or additional expenses 

● Some transactions charge interest 

● It can be easy to load up on additional debt with multiple BNPL agreements 

● While obtaining this kind of credit does not affect your credit report, if you are unable to pay what you owe, it will 

● Since the payment agreement may not be reported, you are not building credit as you would with traditional forms of credit 

● You may lose out on rewards you could earn with your credit or debit card

SUGGESTIONS 

● Make sure the value of the product extends beyond the span of time you have to pay for it. Will buyer’s remorse kick in at that third installment? 

● Understand the refund/return policies and how they relate to the payment plan. 

● If you are going to use BNPL, find a provider that does not charge late fees and interest on purchases. 

Finally, you should treat BNPL like any other extension of credit. You are taking on more debt. It might be just short-term, but it is still debt, nevertheless. Before buying something using BNPL, ask yourself: Is this purchase a need or a want? Have you paid yourself first with automatic monthly savings? Have you built up your emergency fund? Have you paid down high interest-rate debt? 

BNPL may be attractive and a good option for some, but it is a net outflow of the finite amount of cash you have coming in. Like the use of any other credit, you have to work hard to remain disciplined in your use of credit as you work towards your short- and long-term financial goals! 

Craig Kirkland, EVP/Director of Retail Banking for Nevada State Bank, shares insights from his 30-year banking career in Craig’s Common Cents. Visit www.nsbank.com/cents to read his other posts.