BNPL (Buy Now Pay Later)

I just heard Square acquired Afterpay for $29B and my head spun around. I've been quick to ignore Affirm and Afterpay and other similar services as a tech 'disruption' of old-fashioned layaway. I'm dating myself here...but I'm old enough to remember going shopping with my mom at the mall and seeing the Layaway Service Desk in the rear of the department store. My parents never relied on layaway. They instilled in me serious financial discipline - live within your means and I greatly appreciate this today. That said, I realize that 'living within your means' is a privilege afforded to people who can earn enough to support their family (see also structural inequality) and people who maintain an excellent credit score so they can always make a big purchase at a lower interest rate due to preferential credit card terms.


online shopping, saving for a large purchase, credit card debt, financial plan, financial planner, CFP

Is there ever a reason to use BNPL (buy now pay later) when making an online purchase? Actually, yes - it's not a terrible idea. First of all, there's no credit check so you don't have to worry about your credit score. Secondly, you get the merchandise right away and then pay it off over a series of installments through your credit or debit card. If you pay on time, then it's an interest-free mini-loan. The merchant pays the BNPL service provider a small fee with the expectation that this will help increase sales. The merchant makes money on both ends if you end up falling behind on payments.


If you need to make a large purchase such as a new appliance, a last minute plane ticket, a new laptop and you know it will take you a few weeks to pay it off - BNPL is a great option compared to making the purchase on your credit card. With a BNPL purchase you don't have interest charges.


If you know that you may be enticed to overspend, you should steer clear of BNPL as it will only compound the problem and make it more difficult to control spending and track your budget. BNPL is not regulated the way that banks and credit cards are, so the consumer doesn't have the protections they have when they get into regular credit card debt.


The best way to approach large purchases is with a financial plan and an emergency fund to cushion unexpected expenses but when your best laid plans don't work out, BNPL is a reasonable alternative.


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