The holidays are here, which means a lot of people are wrestling with their budgets and considering big-ticket purchases. Typically, consumers have relied on layaway services and credit cards to cover budget shortages during this time of year, but today, they have a new option: Buy Now, Pay Later.

How It Works

The “BNPL” option has become ubiquitous, thanks to its positive reception from both retailers and consumers. It allows consumers to buy an item on credit without using a credit card – which is great for those who need to stick to their budget or who don’t have a credit card. The payments are usually split into equal amounts and spread out over varying periods of time. And unlike credit cards, many of these services do not charge interest.

What You Need to Know

Because these services are each so different – and so different from using a credit card – it’s very important to know the payment terms before moving forward.

BNPLs are set to varying payment frequencies, most often aligned with paycheck schedules. Many people assume that the payments are always due once a month, just as with credit cards, and might not realize that some services will expect payments every two weeks.

It’s also important to note that the payment amount is fixed, unlike with credit cards in which you can choose to make a minimum payment and then pay interest on the balance. That predetermined amount must be paid each time or penalty fees will accrue.

When Should You Use It?

Ultimately, BNPLs are a huge advantage for consumers. As long as you are very clear on the terms, this can be a great way to manage your budget, especially during the holiday season.

It’s a particularly helpful resource for making those big-ticket items more accessible. For instance, Affirm, one of these services, reported that 30% of its 2021 first-quarter revenue came from customers purchasing high-end Peloton workout equipment.

Whether it’s an exercise bicycle or a new couch, these services are a great way to chip away at those bigger purchases.

Potential Issues

Just remember that these services are meant to increase consumer spending. Currently, 55% of shoppers reported that BNPL options caused them to spend more than they normally would have.

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