Who can say no to interest-free financing when shopping online? Apparently, not very many people. An estimated 91.5 million people will use buy now, pay later (BNPL) services in 2025, nearly double 2021’s total. While BNPL services can make it easy and affordable to finance purchases, they’re not always the best option. And, since these microloans are now reported to credit bureaus, using them too much could hurt your credit score.
This article will discuss why you should be wary of BNPL loans and explore 5 other alternatives.
Table of contents
What is buy now, pay later?
Buy now, pay later is a form of financing that allows you to split up purchases into smaller installments. Most BNPL services offer interest-free financing if you pay off your loan in 3-4 installments.
These point-of-sale microloans skyrocketed in popularity during the pandemic by making it easy for quarantined Americans to finance online purchases. $120 Alo hoodie? Seems steep. 4 payments of $30? Oh, that’s much cheaper (#GirlMath).
How does BNPL work?
Buy now, pay later services are installment loans that allow shoppers to pay for purchases over time, instead of upfront. These services are commonly offered as a payment option when checking out online. Here’s how it works:
- Complete your shopping: Let’s say you just moved into a new home and want to buy a $1,000 couch for your living room. You find an option you like online and realize that the store partners with Affirm.
- Make your purchase: You use Affirm to purchase your table instead of relying on a debit or credit card. Now, you’ll pay for the couch over the coming weeks and months in equal installments. You may need to make your first payment at checkout, but this isn’t always the case.
- Pick your payment plan: The most common payment plan is 4 total payments, with one payment made every 2 weeks. For your $1,000 couch, you’ll pay $250 every two weeks until the loan is paid off in 4 payments ($250 * 4 = $1,000).
The biggest selling point of BNPL services is that they offer interest-free financing as long as you pay off your purchase within the payoff window. You can always adjust your repayment schedule if you want even more flexibility. But, doing so might require you to pay interest or fees.
Is buy now, pay later a good idea?
Buy now, pay later can be a good idea if you want to avoid spending cash or racking up too much credit card debt.
For example, if you recently moved and have to buy a lot of household items, then a no-interest, pay-over-time option could be helpful so you don’t run too low on cash or build up credit card debt too quickly.
BNPL services can also be helpful if your pay fluctuates and you need spending assistance while waiting for your next paycheck.
BNPL could now impact your credit score
BNPL loans historically have not been reported to major credit reporting agencies. But, Affirm now reports loans to Experian (one of the three major credit bureaus) – a move that other BNPL companies will likely mirror. This means that your credit score can now get dinged if you miss a payment on a BNPL loan.
The big risk here isn’t that you’ll fall behind on your payments. After all, BNPL payments are usually pretty affordable (that’s the whole point). The risk is that you’ll simply forget to make a payment.
Research from the Consumer Financial Protection Bureau shows that 60% of BNPL users juggle multiple loans. Let’s be honest, it’s incredibly easy to miss a small payment here or there. Especially if your go-to card is unexpectedly canceled, your automated payment randomly doesn’t go through, or you have a large expense that throws your budget out of whack for a few weeks.
Unfortunately, credit bureaus don’t care why you missed a payment. Just that you missed it. A late payment is a late payment and will likely hurt your credit score.
Other risks of BNPL
BNPL services have started to receive some healthy skepticism amid their growing popularity.
For example, Klarna recently partnered with DoorDash. This sparks the question: Is financing a burrito really necessary?
People are also increasingly leaning on BNPL to make big purchases seem more affordable, instead of budgeting and saving up. The fact that more than half of Coachella attendees used BNPL to purchase their tickets is another sign that Americans may be financing now and worrying about it later.
Taking on debt like this can lead to unnecessary risks. According to the Ca. Dept. of Financial Protection and Innovation, there are three main risks of using BNPL services:
- BNPL loans make it easy to get overextended: BNPL services drive long-lasting increases in spending behavior. People who use them are more likely to spend more than they planned over an extended period (this is supported by an HBR study).
- BNPL companies are likely harvesting your data: Many BNPL lenders collect data on your spending and borrowing habits. Then, they’ll use this data to target you with ads that encourage you to borrow more. As the saying goes, “If the product is free, then it means you’re the product.”
- You can get burned by fees: Despite the simple payment structure, many borrowers still end up getting stung by convenience fees, late fees, or confusing repayment conditions.
While buy now, pay later loans can still be a good option for interest-free spending, it’s important to remember that other financing options may be a better fit for certain expenses.
5 Alternatives to BNPL
The best payment option often depends on what you’re buying. While BNPL has its place, it’s not always the best option. Here are 5 ways to buy things without relying on BNPL.
1. A good way to avoid overspending: Pay with cash
Cold hard cash is still a highly preferable option when making smaller purchases. By cash, we also mean debit cards, which are linked to the cash in your bank account.
Paying in cash forces you to evaluate every purchase in real time and really question whether or not you can afford it. This can help you avoid overspending on smaller purchases.
But, what if you’re short on cash? Glad you asked!
2. Helpful when you’re short on cash: Use earned wage access (EWA) to access future paychecks
Earned wage access allows you to access a portion of your earned (but unpaid) wages before your official payday. For example, MoneyLion Instacash® helps you get up to $500 with no interest and no mandatory fees1.
Using EWA has several key advantages:
- You avoid taking on debt: EWA isn’t a loan or form of credit. It’s access to money that you’ve already earned. This means no interest or fees.
- No credit check: EWA is based on earned pay, not your credit score.
- Spending flexibility: Gets you cash when you need it to cover expenses.
- Avoid bill-related fees: EWA helps you get cash in your account to avoid overdraft, late payment, or similar fees.
The only downside is that your next paycheck will be smaller because you usually repay it with your earnings.
MoneyLion can help you access up to $500 Instacash when you need it.
3. Great for higher cash advance limits and get paid up to 2 days early: Join RoarMoneysm
If you’re interested in tapping into future paychecks, then you should also consider joining RoarMoney. RoarMoney helps you access up to $1,0002 of Instacash based on your pay interest-free once you qualify and get paid up to 2 days3 ahead of schedule.
RoarMoney can help you access cash when you need it, so you can help avoid taking out microloans for everyday spending.
4. Helpful for large purchases: Using a personal loan
Personal loans often have more affordable terms than BNPL services if you need some flexibility.
For example, if you break from Affirm’s “pay in 4 payments every 2 weeks” plan, then they’ll charge you up to 36% APR, higher than a credit card.
Taking out a personal loan can be a great alternative to BNPL loans, especially for larger purchases. Many of MoneyLion’s personal loan partners offer large loans with flexible terms depending on your credit.
MoneyLion can help you find and compare loan offers:
5. Nice for rewards and protection: Pay with a credit card
Most people stay away from credit cards due to their high interest rates. But, high-quality credit cards also offer rewards for purchases, spending protections, and plenty of extra perks. With this in mind, there are some situations where it might be better to pay with a credit card rather than a BNPL service:
- Booking a trip, hotel, or flight: Using a credit card can help you earn rewards and leverage built-in protections (trip insurance, car rental insurance, fraud monitoring, etc.)
- Spending categories with bonus point multiples: Strategically spending in areas where your card offers rewards can help you offset the cost of those purchases.
- When you can pay in full fairly easily: If you can pay for the purchase fairly easily, then it might be better to use a credit card and quickly pay it in full so you earn rewards. If you use a BNPL service, then you run the risk of forgetting to make a payment.
Final Thoughts: Time to Break the Bond with BNPL?
Buy now, pay later services can help make it easier to buy stuff. But, these services also come with several red flags, including:
- Incentivizing you to spend more money, more often
- Targeting you with ads that encourage you to buy, buy, buy
- Hitting you with hidden fees or confusing repayment terms
While BNPL loans have their time and place, it’s important to remember that there may be better alternatives depending on what you’re buying.
I hope that you’ve found this article valuable when it comes to learning about alternatives to buy now, pay later services – thanks for reading!
FAQs
Is buy now, pay later a debt?
Yes. BNPL is an installment loan, which is a form of debt.
What is the purpose of buy now pay later?
BNPL services help make it easier to finance purchases by offering interest-free loans and simple repayment options.
Is it safe to use buy now, pay later?
Yes, it’s generally safe to use buy now, pay later services as long as you repay your loan within the time frame. However, relying too heavily on these services can negatively impact your financial health.
Does buy now, pay later affect credit score?
Yes, it’s likely that BNPL services will start affecting your credit score now that Affirm reports BNPL loans to Experian – a move that will likely be mirrored by other BNPL services.
Why can’t I get approved for buy now, pay later?
It might just be a mistake – Double check that your name, address, or phone number are correct and match what’s in your bank account. If everything is accurate, then you likely have a challenging credit history or might have missed a BNPL payment in the past. Try these 10 tips to help boost your credit score.
