When I was recently leading a class on Dave Ramsey’s Financial Peace University, one of my participants was working on her family’s budget. She was proud that she had figured out each category and was ready to stick with that budget.

However, she had forgotten about some of her online shopping for the month, and suddenly a large amount was taken out of her account by Klarna, ruining her carefully planned budget.

If you go to nearly any online storefront now and make a purchase, you’ll probably see names like Klarna, Afterpay or Affirm. These services offer the option to “buy now, pay later” or pay in smaller installments over time, which certainly can seem convenient at that moment. It even feels like it takes the sting out of a large purchase.

But shoppers can quickly get into trouble with the popular BNPL (buy now, pay later) payment method. All of these “small payments” add up.

Buy Now Pay Later Graphic

Convenience Encourages Impulse Buying

Not surprisingly, studies have shown that buying with installments likely encourages increased spending and impulsive purchases. A March 2021 survey from Ascent found that 16 percent of BNPL users reported making five or more purchases with BNPL in an average month.

If you know you can spread out the payments, it’s easier to press the purchase button.

“The convenience of deferred payments can encourage impulse purchases that might not be necessary or affordable,” says Karyssa Pedersen, branch manager at INB Wabash.

The problem? That can lead to consumer debt that can even become hard to handle.

“These services can make it easy to overspend, leading to unmanageable debt,” Karyssa says. “Many times, these programs also have complex terms and conditions, making it difficult to fully understand the financial commitment. Understanding these risks can help consumers make more informed financial decisions.” 

Buy Now, Pay Later is Still Debt

Consumer debt is a major problem that doesn’t appear to be going away anytime soon. In the first quarter of 2024, total household debt reached $17.69 trillion, according to the latest Quarterly Report on Household Debt and Credit. And $1.12 trillion of that is credit card debt.

Depending on the lender, there may be additional costs involved with penalties.

“Missed payments often incur late fees and high interest rates, which can accumulate quickly. And late or missed payments can negatively impact credit scores,” Karyssa shares.

In fact, INB mortgage lender Bill Townsend says he has worked with several clients who have defaulted on these lending programs, and it shows up on their credit reports after being turned over to a collections agency.

If you neglect the “pay later” portion of “buy now, pay later,” this not only affects your immediate credit score, it may also affect your ability to get a mortgage or car loan or, at the very least, negatively affect your loan terms.

“I would stay away from these types of options as it’s just a glorified credit card,” Bill advises. “If you cannot buy it and pay it right then and there, it’s better to save your money and pay for it when you can afford it.”

Delayed gratification may be less fun in the moment, but in the long run, it’s a less stressful way to live – and much better for your financial future!