In Partnership with Nonprofit, GreenPath Financial Services

“Buy Now, Pay Later” (BNPL) services have become increasingly popular, offering a tempting alternative to credit cards. A 2022 report from the Consumer Financial Protection Bureau found that from 2019 to 2021, the number of BNPL loans originated in the U.S. by the five lenders it surveyed grew from 16.8 million to 180 million, highlighting how appealing these services are to consumers.

Why are Buy Now, Pay Later Services so appealing?

The ability to buy something you really want without having to pay in full is an obvious convenience. BNPL services stand out for their flexibility and many interest-free options. With BNPL, you can spread those $200 sneakers over four payments of $50, making it easier to fit into your monthly budget. It’s convenient, quick, and feels like a smart financial move, but it’s very important to understand the fine print!

What They Don’t Tell You About BNPL

As a community bank in New York, we value transparency, which is why we want you to know the potential impact BNPL services can have on your personal finances. Before you split that clothing purchase into 4 payments, make sure you understand the hidden costs of BNPL:

  1. Your Credit Score Can Be Impacted: Gone are the days of BNPL not affecting your credit score. Starting this fall, FICO will release a credit score model that considers BNPL loans. This means that banks and lenders will be able to see one score that considers BNPL loans and one that doesn’t. If you make late payments, this can decrease your credit score and impact your lending opportunities.
  2. Debt Accumulation: Buy Now, Pay Later services are fine when used responsibly, but unfortunately, some users overdo it. We get it, though – you might be more likely to buy things you don’t really need, simply because the payments feel manageable. We do, however, advise against getting into the habit of using BNPL for things like food delivery. Instead, focus on building healthy money habits so you don’t have to rely on a service that can cost you more in the long run.
  3. Falling Behind on Payments: According to LendingTree, nearly half of BNPL users (47%) have paid late on one of these loans at some point, up from 40% in 2023. This can result in late fees, which can quickly add up and make the total cost of your purchase higher than expected.
  4. Risk of Overdrawing Funds: Many BNPL providers ask for access to your personal checking account for automatic payments, meaning the BNPL provider can still withdraw funds from your account if you forget about a payment or spend more than you expected. This could lead to an overdrawn account, resulting in additional overdraft fees from your bank.

How To Enjoy BNPL Without Hurting Your Financial Health

If you decide to use Buy Now, Pay Later Services, use them wisely. You wouldn’t want to rack up a huge amount of credit card debt, so treat BNPL loans the same way. They may not be the same as credit cards, but at the end of the day, BNPL loans are still loans. Ask yourself if you can afford the payments without stretching your budget. Avoid using BNPL for impulse purchases, and always read the fine print to understand any potential fees or penalties.

Struggling with BNPL payments? We’re here for you as your trusted New York banking partner. Don’t hesitate to reach out to us for guidance – if you’re in the Red Hook area, we’re currently offering free financial counseling services in partnership with our nonprofit partner, Ariva, every Monday at our Red Hook branch. You can also connect with another one of our trusted nonprofit partners, GreenPath Financial Wellness. Their certified financial experts can help you stay aligned with your budget and financial goals.

Get Ahold of Your Personal Finances With A Community Bank in New York

In addition to free financial counseling services, we also offer a variety of affordable banking solutions to meet your financial needs. We have personal checking and savings account options with zero overdraft fees,  maintenance fees, and competitive interest rates.

If building your credit is a priority, we can also help you apply for a personal loan. With our credit builder loan, loan proceeds are placed in a savings account to secure the loan. Each month, we report your payments to the credit bureaus. When you make the final payment, the loan proceeds are available, or you may continue to build your savings. This is an excellent way to improve your credit worthiness and increase access to affordable lending options so that you don’t have to rely on BNPL services.