6 Times You Should Never Use Buy Now, Pay Later, Experts Warn

Over the past couple of years, major U.S. retailers, including Costco, Walmart, Target, and Amazon, have started offering shoppers a buy now, pay later (BNPL) option through services like Affirm, Afterpay, Klarna, and PayPal Pay Later. These companies essentially provide a short-term loan to buy whatever you want without having to pay for it in full, instead making several payments over time.

American consumers are so taken with buy now, pay later plans that they are surging this holiday shopping season, The Washington Post reports. “The services have driven $10.1 billion in spending, a 9 percent jump from last year, according to Adobe Analytics,” they wrote.

“Cyber Monday was the single largest day for BNPL, accounting for a record $1.03 billion, a more than 4 percent increase over last year. That is about 7 percent of what Americans spent online that day,” they continued.

However, BNPL can be a slippery slope, financial experts warn, putting you into a cycle of debt and at risk of potential penalties or interest fees. With that in mind, here are six times you should never use buy now, pay later.

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When people get used to services like Afterpay, Affirm, and Klarna for bigger purchases, they might start relying on them to buy everyday essentials as well. But this could become a bad habit that’s hard to break, according to Austin Hair, financial expert and real estate investor.

“Purchasing everyday items like groceries or gas on installment can create a cycle of dependency on credit for basic needs,” he shares. “It’s crucial to budget and pay for these items outright to avoid a situation where you’re continuously paying for past expenses.”

You should be careful when it comes to relying on installment payments for depreciating assets such as cars, Sherman Standberry, certified public accountant and managing partner at the tax firm My CPA Coach, tells Best Life.

“Anything that loses value over time should ideally not be purchased with BNPL tools,” he advises. “The item could depreciate faster than you’re able to pay it off.”

Hair agrees and adds that designer clothes, accessories, or jewelry also fall into this category.

“This can lead to unnecessary debt for items that don’t offer long-term value or return on investment,” he cautions. “It’s better to save and pay in full to avoid the added stress of installments on non-essential items.”

RELATED: Never Use Your Credit Card for These 6 Purchases, Financial Experts Say.

Many people are considering purchasing fitness equipment in the new year to help with their fitness resolutions. But Robert Farrington, money expert and founder of The College Investor, warns against using BNPL plans to do so.

“Think about the necessity of the purchase and how often you’ll use the workout equipment,” he says, adding that it’s often wiser to buy second-hand options instead of financing expensive machines.

“Come February or March, you’ll likely see a lot of folks selling unwanted workout equipment on online marketplaces as they invested in their fitness for the new year, but realized they set unrealistic expectations,” he notes.

For example, Peloton has an entire resale site where users can sell and buy used bikes and treadmills.

When the newest iPhone comes out, you might want to get the latest model at all costs. But if you have to pay for it in installments, it’s better to wait, according to Melanie Musson, a finance expert working with Clearsurance.com.

“If your phone is functional, you can keep using it,” she points out. “And when you do decide to upgrade, chances are you can do it with your phone company with 0 percent interest for a longer period of time than you can with BNPL tools.”

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Buy now, pay later plans can seem too good to be true. After all, it’s like a credit card without the interest, right? Not always.

Certain BNPL offers come with deferred interest, meaning the contract is only interest-free for the introductory period. “But if there’s any balance left over, even $1, you can be charged interest on the original amount of the purchase,” cautions Nasdaq.

To avoid this, read the terms and conditions carefully, looking for phrasing like “no interest if paid in full within six months,” advises Nasdaq.

Buy now, pay later plans are in a kind of gray area when it comes to your credit score.

“BNPL companies don’t report to credit bureaus, so when people go to apply for traditional loans or new credit cards, their full debt isn’t being taken into consideration, which can lead to an overextended line of credit,” Best Life previously explained.

The other thing to be aware of is that on-time BNPL payments don’t positively affect your credit score like credit card payments do. However, late or partial BNPL payments can negatively affect your credit score.