Buy Now, Pay Later Programs — And Why You Should Skip Them Buy Now, Pay Later Programs — And Why You Should Skip Them

Buy Now, Pay Later Programs — And Why You Should Skip Them

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Have you ever been shopping and presented with an option to delay your payments? These are found everywhere — whether you're on Amazon, Target, or the thousands of other retailers who provide buy now, pay later financing. Recently, Citi has expanded its offerings with the introduction of Citi Flex Pay, available through Amazon Pay.

But, in short, it's not a great idea to use any of the “buy now, pay later” programs you'll find advertised on different websites. In this article, we'll discuss why. Here's a look at what “buy now, pay later” is and when it is — and isn't — a good idea to use these services.

What Is Buy Now, Pay Later?

Maybe you've hit the checkout screen when shopping, only to be overwhelmed with a veritable buffet of different payment methods. (We're looking at you, Amazon). These can, and often do, include “buy now, pay later” offerings. This includes popular companies such as Klarna, Afterpay, Affirm, Sizzle, and Splitit. Other options include equal monthly payments through Amazon Pay when paying at thousands  of merchants online.

screenshot of Amazon checkout page with offer for Affirm buy now pay later service

If you've been around for a while, these will likely look familiar to you. Buy now, pay later companies are the online answer to in-store financing. They work similarly: You make a purchase, (usually) apply for credit, and take your time making payments on what you've bought.

In theory, it's quite simple. And it can seem especially enticing if you're making an expensive purchase. However, it's almost never a good idea to use this type of financing since it ends up costing more in the long run.

When You Should Use These Programs

Before digging into the negatives of buy now, pay later programs, let's talk about when it can be a good idea to use them. The list is short, simply because there are quite a few downsides to financing your purchases.

Special offers

Citi Flex Pay With Amazon 0% APR banner

It won't always cost extra when you use a buy now, pay later form of financing. Take a recent promotion for example, offered by Citi Flex Pay via Amazon Pay. As part of the service's debut, Citi offered up to 12 months of 0% financing:

  • $50–$148 in purchases: Three months at 0% interest.
  • $149–$299 in purchases: Six months at 0% interest.
  • $299+ in purchases: 12 months at 0% interest.

Because Amazon Pay is available on tons of different websites, this presented a unique opportunity to enjoy fee-free financing for up to 12 months. However, this special offer was only available for purchases made through July 31, 2023. Now that this has passed, you're back to making plan payments with fees. But this example shows when it could make sense to use buy now, pay later services.

When you have a large purchase

We don't recommend you ever carry a balance, whether that's on a credit card or a personal loan. But sometimes things happen, and we aren't always prepared. Say your air conditioner goes kaput, summer is around the corner, and you don't have the money saved to replace it. In these types of emergency situations, buy now, pay later financing can be a lifesaver.

Note also that buy now, pay later financing can be less expensive than other types of debts. This is especially true with credit cards. Let's say you're in an emergency and have the choice between carrying a balance on a credit card or something like Afterpay. In this case, you'll want to do the math to see which one is the better option. The best rewards credit cards tend to have high interest rates, and saving money while paying down the balance is important.

Building your credit

If you have a limited credit history and you're looking to build your credit, using a company such as Klarna for your purchase can help. This is because it can report payments to the credit bureaus. Making on-time payments and paying off the loan can help you establish a positive credit history.

However, not all impacts on your credit will be good — especially over the short term. Read more about that in the downsides section below.

Downsides of Using Buy Now, Pay Later

What are the reasons to avoid buy now, pay later options? You can find many.

You'll buy more than you can afford

Afterpay financing options

One of the cardinal rules of credit is to pay everything off, every month. This is especially pertinent to those who are chasing points and miles since interest rates on travel credit cards tend to be higher than average.

The same rule applies to anyone choosing “buy now, pay later” financing. In most cases, you'll never want to buy something and pay it off over a longer period of time. It's easy to overspend on things you can't afford when the costs are broken into smaller, monthly payments.

It's more expensive

Depending on how you're financing, buy now, pay later purchases will incur two different types of costs: interest or monthly fees. Interest accrues on your balance and adds to your total each month. Monthly fees are a fixed cost and are charged to your plan each month. In either case, you're paying more for your purchase than you otherwise would have. By financing an item, you pay more in the long run.

Taking time to pay off your purchase also opens you up to the possibility of more fees. This is especially true if you struggle to make your payments on time. Late payment charges can stack up, adding even more to the final tally of what you owe.

It impacts your credit

For the most part, buy now, pay later companies rely on your credit score to determine whether to lend you money. It's understandable that these companies would want to check your credit before lending you money. But, keep in mind that this can cause your credit score to take a dip.

That's because a hard inquiry — created when a lender checks your credit score — is considered a negative mark on your credit. It's not permanent, but it will lower your credit score for a few months. Plus, having too many of these on your account can significantly lower your score as it indicates that you're applying for a lot of new credit — which is a worrying sign to future lenders.

Buy now, pay later financing also can be a mixed bag when it comes to reporting to credit bureaus. Some companies don't report anything to your credit report — such as Afterpay and Affirm. However, some “buy now, pay later” options will show up on your credit report — for better or worse. If you don't have a lot of credit to begin with, adding a new debt can cause your score to fluctuate quite drastically.

It negates credit card rewards

Card issuers such as Citi and Chase will offer buy now, pay later options to cardholders. However, this still isn't worth it. Sure, if you're using a credit card that earns rewards, you'll be able to get points and miles for your purchases — but at what cost?

Let's say you've used the Chase Sapphire Reserve® to book a flight for $1,000. You'll earn 3x Ultimate Rewards on your purchase for a total of 3,000 points in your pocket. AwardWallet users tend to redeem Chase points at 1.97¢ apice, which means those 3,000 points can be worth more than $55.

screenshot of offers from My Chase Plan, which is a buy now pay later service

Chase also offers a buy now, pay later service called My Chase Plan®, which allows you to make monthly payments at a fixed rate. Between earning rewards and being able to defer payments, it's easy to upgrade to a more-expensive flight option. However, if you're charged more than $55 for the fees associated with My Chase Plan®, you're effectively wiping out any rewards that you've earned.

The Bottom Line

Buy now, pay later financing can be tempting when making purchases. However, you'll want to resist the urge, especially since you'll come across so many downsides.

You may find a few instances when this type of financing can make sense, such as emergencies or when there are special offers where you can truly defer payments at no extra cost. However, these are the exception, rather than the rule.

Otherwise, buy now, pay later options aren't smart. They cost more, can negatively impact your credit, and can wipe out any earnings you'll get on a credit card. Do yourself a favor and give them a miss.

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  • Yeah I took a major 20 point hit when I used affirm to pay my annual ski pass, it it was zero % for six months . The second time thru no fico hit