Could you be at risk of a Buy Now Pay Later debt spiral?

By Aaron Crowe

Reviewed by Kimberly Rotter

Jun 22, 2023

Read time: 3 min

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That purse. That big, beautiful smart TV. That patio table with the little propane-fueled fire pit in the center of it, and those pretty glass beads.

You don’t have to sweat the $1,000 price tag. You can take it home for $250. Sounds amazing, doesn’t it?

We get you. ‌We love nice stuff, too.

Here’s the thing—Buy Now Pay Later (BNPL) doesn’t always work out the way you think it will. If you’re an overspender, BNPL can turn into a downward debt spiral very quickly.

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What is BNPL?

Buy Now Pay Later is exactly what it sounds like. You get the thing now, and you pay for it later. Often, you get to do this for free. That’s what makes it sound so enticing. No credit card interest. No loan fees. Just a few easy, smaller payments.

Even better, BNPL is usually available without a credit check. You don’t even have to worry about whether you’ll qualify.

Put all this together, and it’s clear how BNPL tempts people to buy anything at any time. 

If it sounds too good to be true, that’s because BNPL can turn into a debt trap before you realize it’s happening. 

Now don’t get me wrong. BNPL is not in itself a bad thing. It’s just that they make it sound easier than it really is. It’s great in a very specific set of circumstances—but most of the time, it’s not the smartest way to buy. 

How does BNPL work in real life?

Owing money makes it harder to manage your money. I watched my friend Natasha fall into a BNPL hole. She said she loved that she didn’t have to pay for things all at once. 

“I had the whole amount, but it was really convenient to slice it into smaller payments. That way I could use my cash for other things in the meantime.”

Unfortunately for Natasha, life happened. Because it always does. Her car broke down while she was juggling multiple BNPL debts. She spent her money on car repairs and was left without enough to make her BNPL payments on time. 

Bam, missed a payment on one loan. Bam, missed a payment on the next one. In a flash, she was hit with late fees, interest, and bills that kept getting bigger. 

This is a common scenario. BNPL makes the thing feel affordable right now. But if you can’t afford it today, there’s a chance you won’t be able to afford it a month from now. And anyway, if you can afford it in a month, why not just wait?

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BNPL fees

Many BNPL offers are fee-free. But only if you stick to the payment plan perfectly. Miss one payment, or be just one day late paying it, and you’re likely to get hit with a late fee. Then, interest charges kick in and start building up. 

Not all services charge late fees, but it’s hard to know which ones don’t. There’s no law that requires BNPL companies to disclose their fees the way other lenders have to. 

It’s easy to get in over your head

Any type of credit, but especially free credit, can tempt you to overspend. Buy Now Pay Later loans are usually for low amounts, but there’s nothing stopping you from taking out multiple BNPL loans at the same time. A BNPL company may limit your loan amount, which can help you avoid a debt trap with that company if you repay it on time. But you can pay a BNPL loan through another BNPL company loan, which is known as “loan stacking.” That could be a sign that you’re already in a debt trap.

Natasha forgot how many BNPLs she had open. Once she fell behind, she got hit with a cascade of fees and interest charges.

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How to keep a lid on BNPL

Consider saving for the purchase instead of borrowing with a BNPL loan. Build a budget and set aside a little fun money every month. But if you do take one, avoid a debt spiral with some precautions:

  • Take only one BNPL at a time

  • Only borrow what you can afford to pay back by the end of the loan term.

  • Keep track of when payments are due, since not all BNPL services provide billing statements.

  • Make payments on time and make sure there’s enough money in your bank account to cover automatic withdrawals for BNPL payments.

Aaron Crowe

Aaron Crowe is an Achieve contributor. He is a freelance journalist who specializes in writing about personal finances. He has worked as a reporter and editor at newspapers and websites for his entire career.

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Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.

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