Buy Now, Pay Later: The Risks Behind the Convenience

Buy Now, Pay Later (BNPL) services like Affirm, Afterpay, and Klarna have become increasingly popular with consumers seeking flexibility in how they make purchases. These services allow you to split the cost of an item into smaller, more manageable payments over time, often with zero interest. According to the Consumer Financial Protection Bureau (CFPB), BNPL loans in the U.S. grew from 16.8 million in 2019 to a staggering 180 million in 2021, demonstrating just how widespread this trend has become.

While BNPL may seem like a no-brainer for easing financial strain or spreading out larger purchases, it's important to understand the hidden risks that could impact your financial health if you're not careful.

The Hidden Costs of BNPL

The convenience of BNPL often overshadows the risks that come with it. First, missed payments are a common issue. A survey by the LendingTree found that nearly half (47%) of BNPL users have missed at least one payment, up from 40% in 2023. Missing a payment doesn't just result in late fees, which can add up quickly - it may also hurt your credit score if the provider reports to credit bureaus.

Speaking of credit scores, not all BNPL services report positive payment history. This means that even if you make all your payments on time, your credit score might not improve. However, if you miss a payment, your credit score could take a hit, limiting your ability to qualify for future credit at favorable rates.

Another risk is overspending. BNPL makes it easy to buy now and worry about the payments later, which can lead to accumulating more debt than you initially intended. Over time, this can strain your budget and make it harder to save or achieve other financial goals.

Finally, there's the risk of overdrawing your account. BNPL services often require linking a checking account for automatic payments. If you forget about a scheduled payment or have insufficient funds in your account, you may incur costly overdraft fees from your financial institution.

UT Federal Credit Union Can Help

If you find yourself overwhelmed by BNPL payments or debt, UT Federal Credit Union is here to help. Our team of financial professionals can work with you to assess your financial situation and offer tools and advice to help you stay on track. We also provide financial counseling through our partnership with GreenPath Financial Wellness, where certified counselors can guide you toward achieving your financial goals.

Whether you need help managing BNPL debt or looking for smarter financial options, UTFCU has resources to support your financial well-being.

Read the full blog post here: Buy Now, Pay Later: The Risks Behind the Convenience