How Do ‘Buy Now, Pay Later’ Services Work?

June 28th, 2021 by

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There is a new service that some retailers are offering to their online shoppers called Buy Now, Pay Later (BNPL). 

This new way of shopping allows you to purchase items and pay them off in multiple payments over time rather than all at once. It is very comparable to layaway with the exception that your item is sent to you right away even though you are still paying for it.

How does Buy Now, Pay Later services (BNPL) work?

Even if you have a credit card, with available credit, some shoppers prefer to use the BNPL service if it is offered to avoid a higher interest rate on the item.

Some BNPL options have no fees or interest rates at all.

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When you go to purchase an item, you may be presented with multiple payment options with different monthly payment amounts. You can then choose the option that best fits your budget, then you will provide your payment information.

However, it is very important that you know the terms and conditions of your BNPL account so that you can avoid any financial issues during the repayment time.

How can a BNPL affect my credit?

Although there is no credit check when you utilize a BNPL service, your credit can still be impacted. 

As an example, if you do not have the funds available in your banking account at the time of your payment withdrawal or your bank account is closed out, these situations could be reported to the credit reporting agencies and thus affect your FICO Score. 

There is also the possibility of having penalty interest rates and fees added onto your account as well as the negative marks on your credit report. 

You may also be considered in default of your account if you file for bankruptcy while there is still an outstanding balance on the BNPL account. Also if you provide false or inaccurate information, or violate the terms of the installment agreement.

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If you decide to link your BNPL with a credit card rather than your banking account, make sure that you pay that balance off in full on time each month. Otherwise, by carrying this balance you will incur late payments as well as interest and the potential damage to your FICO Score. 

This information could remain on your credit report for up to seven years as well as be a factor in calculating your FICO Score. 

If you find that there has been some inaccurate information in regards to your BNPL account you can file a dispute with the credit reporting agencies.

The last thing you should also consider is to factor in the amount and number of payments you will be held accountable for in re-paying back the amount.

It can be very tempting to spend more than you can afford. The payments may be more affordable, but you need to keep in mind any major expenses that may come up that could impact your BNPL payments.


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