You're checking out online when you see an offer to split your purchase into several smaller payments. Instead of paying $200 today, you might pay $50 now and the rest over the next several weeks.
Buy Now, Pay Later (BNPL) can make holiday purchases seem easier to fit into your budget. But before choosing that option at checkout, it's important to remember that you're still borrowing money.
BNPL has become an increasingly common form of consumer credit. A typical "pay-in-four" plan divides a purchase into four equal payments over about six weeks, often without interest or additional fees when the terms are met. [federalreserve.gov]
So, should you use Buy Now, Pay Later for holiday shopping? Here's what to consider before you click that button.
What Is Buy Now, Pay Later?
Buy Now, Pay Later is a form of short-term financing that allows you to receive a purchase immediately while paying for it over time.
A common BNPL arrangement divides a purchase into four payments. For example, a $100 purchase might require $25 at checkout followed by three $25 payments every two weeks. Payments are commonly set up to be made automatically from a linked payment account. [federalreserve.gov]
BNPL use has grown significantly. According to the Consumer Financial Protection Bureau (CFPB), the BNPL market continued to expand through 2023, with its research examining loan volume, usage frequency, average loan size, late fees and other characteristics of the market. [consumerfinance.gov]
Is Buy Now, Pay Later a Good Idea for Holiday Shopping?
BNPL may be useful if the purchase already fits within your holiday budget and you know you can comfortably make every scheduled payment. It becomes riskier when it encourages you to spend more than you otherwise would or when you're juggling several payment plans at once.
The key is to look at the total purchase price and your total outstanding payments, not just the smaller amount due today.
Potential Benefits of Buy Now, Pay Later
There are reasons consumers may find BNPL attractive.
1. You Can Spread Out a Planned Purchase
Splitting a larger expense into several payments may make cash flow easier to manage, particularly when you've already planned for the purchase.
2. Some Plans Don't Charge Interest
Many traditional pay-in-four BNPL products can be interest-free if payments are made according to the plan's terms. [consumerfinance.gov], [federalreserve.gov]
That doesn't mean every BNPL offer is free, however. Terms can vary, so review the specific agreement, including potential fees, before accepting an offer.
3. Payments May Be Predictable
Knowing the amount and date of each installment can make a planned purchase easier to incorporate into your budget. The challenge comes when several BNPL purchases overlap, creating multiple automatic payments all coming out of your budget during the same period.
Risks of Using Buy Now, Pay Later During the Holidays
1. Small Payments Can Make It Easier to Overspend
A $50 payment can feel much more affordable than a $200 purchase, but the item still costs $200. During the holidays, that distinction becomes particularly important. You might have:
Individually, those payments may seem manageable. Combined, they could put unexpected pressure on your checking account.
2. Multiple BNPL Plans Can Become Difficult to Track
Using one payment plan is one thing. Using several across multiple retailers or providers can be harder to manage.
The Consumer Financial Protection Bureau has studied "loan stacking," or consumers having BNPL loans from multiple firms at roughly the same time, as part of its broader research into BNPL and other unsecured debt. [consumerfinance.gov]
Before adding another BNPL purchase, review all upcoming payment dates and amounts.
3. Missed Payments Can Have Consequences
Terms vary by provider and product. Depending on the agreement and your linked payment method, missed or unsuccessful payments could potentially result in fees or other financial consequences.
The National Consumer Law Center has cautioned consumers to track BNPL payment dates carefully, noting concerns about late fees, returned-payment fees, and potential overdraft or nonsufficient-funds fees associated with unsuccessful payments. [nclc.org]
Understand those terms before you make the purchase.
Does Buy Now, Pay Later Affect Your Credit?
It can depend on the provider and type of BNPL product.
Historically, traditional pay-in-four BNPL loans generally haven't been reported to nationwide consumer reporting companies in the same way as conventional credit accounts. The Consumer Financial Protection Bureau has noted that BNPL loans had not appeared in consumers' credit records in sufficient volumes to provide a complete picture of their usage through conventional credit data. [consumerfinance.gov]
Because products and reporting practices can vary, check the terms of the particular BNPL provider rather than assuming a payment plan will or won't affect your credit.
BNPL vs. Credit Card: Which Is Better for Holiday Shopping?
There's no single answer that's right for everyone. Before choosing either option, compare:
Buy Now, Pay Later
Consider:
Credit Cards
Consider:
Rather than asking"Which payment method is best?", ask: Which option allows me to make this purchase at the lowest reasonable cost without stretching my budget or creating debt I can't comfortably repay?
And if neither does, postponing the purchase may be the better financial decision.
6 Questions to Ask Before Using Buy Now, Pay Later
Before choosing BNPL at checkout, pause and ask:
1. Would I still buy this if I had to pay the full price today?
If the installment option is the main reason you're making the purchase, reconsider whether it fits your budget.
2. How many BNPL payments do I already have?
Look at your total outstanding payments, not just this purchase.
3. When will each payment come out of my account?
Compare the payment dates with your paydays, bills and other financial commitments.
4. What happens if I miss a payment?
Review the provider's terms for late payments, unsuccessful automatic payments and other potential fees.
5. What happens if I return the gift?
Understand how returns, refunds and disputed purchases work before using BNPL.
6. Could I save for the purchase instead?
For nonessential purchases, waiting until you have the money available may help you avoid another financial obligation altogether.
How to Use BNPL Responsibly During the Holidays
If you decide BNPL makes sense for a purchase, a little planning can help you stay in control.
Create a holiday spending limit - Decide how much you can afford before you start shopping.
Track the full purchase amount - A $200 purchase is still $200, even if today's payment is only $50.
Keep all BNPL payments in one place - Create a simple list of:
Don't rely on future income you aren't sure you'll have - Only commit to payments that fit within the income and budget you can reasonably expect.
Leave room for regular expenses - Holiday purchases shouldn't interfere with housing, utilities, groceries, existing loan payments, savings or other essentials.
Frequently Asked Questions About Buy Now, Pay Later
Is Buy Now, Pay Later considered a loan?
Yes. BNPL is a form of consumer credit that allows you to receive a product or service now and repay its cost over time. Traditional pay-in-four loans commonly divide the purchase into four payments over approximately six weeks. [consumerfinance.gov], [federalreserve.gov]
Does Buy Now, Pay Later charge interest?
Some traditional pay-in-four BNPL plans don't charge interest when payments are made according to the agreement, but BNPL products vary. Always review the specific interest, fee and payment terms before accepting an offer. [federalreserve.gov]
Can you have multiple BNPL plans at once?
Consumers may have multiple BNPL loans, including loans across different providers. The Consumer Financial Protection Bureau has specifically studied the prevalence of this type of loan stacking. [consumerfinance.gov]
Is BNPL a good way to pay for Christmas gifts?
It depends on your financial situation. If the gifts already fit within your budget and you can comfortably manage every installment, BNPL may provide payment flexibility. If you're using it primarily to spend beyond your budget, it could leave you managing holiday expenses after the season has ended.
Enjoy the Holidays Without Losing Sight of Your Budget
Buy Now, Pay Later can make a holiday purchase feel more manageable, but smaller payments don't make the purchase itself less expensive.
Before using BNPL, look beyond today's payment. Consider the full purchase price, every upcoming installment, your existing debt and the other demands on your holiday budget. The best holiday payment strategy isn't necessarily the one that lets you buy more. It's the one that helps you celebrate without starting the new year under unnecessary financial pressure.