Is Buy Now, Pay Later a Good Idea for Holiday Shopping?
Buy Now, Pay Later options have become common at online checkout, in shopping apps, and at some stores. They can make a larger purchase feel easier to manage by splitting the total into several smaller payments.
That convenience can be useful, but it can also make it easier to commit more of your future income than you intended, especially during the holidays when gifts, travel, food, decorations, and other seasonal expenses can pile up quickly.
How Does Buy Now, Pay Later Work?
Buy Now, Pay Later, or BNPL, is a type of installment loan. A common setup allows a shopper to divide a purchase into four payments, often made every two weeks. The first payment may be due at checkout, with the remaining payments charged automatically to a debit card, credit card, or bank account.
Many short-term BNPL plans do not charge interest, although terms vary. Before using a store’s BNPL option, it’s usually a good idea to review the payment schedule, possible fees, and what happens if a payment is missed.
Taking Advantage of BNPL Isn’t Always a Mistake
The main appeal of BNPL is simple: smaller payments can make a purchase feel easier to fit into your current budget.
For someone buying several gifts, traveling, or dealing with other seasonal expenses, spreading out a purchase may leave more cash available today.
People just need to keep in mind that the purchase is not actually cheaper. The full price eventually must be paid.
One or two BNPL plans may be easy to manage, but frequent use of BNPLs can make repayment more difficult to track.
Small Payments Can Add Up Quickly
A $25 payment, a $40 payment, and a $60 payment may not seem especially large on their own, but several overlapping payment plans can drain your checking account or credit card much faster than expected.
When a shopper has multiple BNPL plans with payments coming due over the next few weeks, it can be easy to lose track of when each payment will be deducted and how many installments remain.
BNPL plans are not inherently dangerous, but people who use them frequently should develop some method for keeping track of how many they have, when installments are deducted from their account, and how close they are to finishing each BNPL plan.
What Happens If You Miss a BNPL Payment?
The consequences depend on the provider and the specific plan.
Missed payments can result in fees, restrictions on future purchases, collection activity, and possible damage to your credit if the unpaid debt is eventually reported. Automatic withdrawals can also create problems with your bank or credit union if there is not enough money in the linked account when a payment comes due.
Does Buy Now, Pay Later Help Build Credit?
Usually not.
Most short-term BNPL plans do not report regular payment history to the major credit bureaus. That means making every payment on time may not help build your credit history in the same way that responsibly using a credit card can.
However, if you fail to repay a BNPL balance and the debt is sent to collections, it could be reported to the credit bureaus and hurt your credit.
Is It Better to Use BNPL or a Credit Card for Christmas Shopping?
Credit cards can be easier to manage because purchases appear on one account, and responsible use may help build credit and allow you to earn reward points.
The tradeoff is that carrying a balance for several months after heavy holiday shopping can lead to expensive interest charges.
If you use a credit card, the safest approach is to keep holiday spending within an amount you can comfortably pay off rather than carrying a balance of holiday debt into the new year.
Saving Ahead Can Make Holiday Spending Simpler
Another option is to minimize the amount of debt you need to take on for holiday purchases by planning ahead and making deposits in a dedicated holiday savings account, such as Ouachita Valley FCU’s Christmas Club savings account. Members can contribute throughout the year, and the funds are transferred to checking on November 1.
Ouachita Valley Federal Credit Union members can contact us at 318.387.4592 to learn more about Christmas Club savings or credit card options.
