The Problem With Buy Now Pay Later Programs

“It can be yours for just three easy payments of $19.95.” 

That’s the pitch, isn’t it? 

Buy now pay later programs are nothing new. They are targeted at individuals who cannot pay cash upfront for purchases they want or need.

Younger generations are fearful of credit card debt and the problems that come along with it. Despite this, they are the primary users of buy now pay later programs, making up 75% of users. The problem with buy now pay later programs is they are essentially credit cards without the physical card. 

The fact that this lack of distinction in the minds of BNPL users is not evident, and that is confusing. Buy now pay later programs allow for the purchase of an item that the buyer cannot afford in whole, with the knowledge they will pay it back in installments at a later time. This is, fundamentally, the same way you could describe a credit card. There is no distinguishable difference in terms of functionality. And, similarly to a credit card, if a person misses or is late to make a payment, they are charged either interest or a fee. And ultimately, the same problem arises as those who go into credit card debt. 

While Klarna boasts about their 41% increase in average order value, what this ultimately means for consumers is nothing good. Consumers are spending more money than they would have without the service – and living beyond their means. The outcome is consumers are going into debt that is practically identical to credit card debt – precisely what they feared. 

For example, 15% of Australian buy now pay later-users ended up taking out a loan to pay off their buy now pay off purchases! Additionally, according to one British bank, 10% of people overdrew their checking accounts in the same month they made buy now pay later payments, leading to even more expense.

Buy now pay later programs are seen as a safe alternative to credit cards, which not the case. They are practically identical and hold the same drawbacks, without the benefit of potentially boosting your credit score. It is important to budget effectively and not spend money you don’t have. Buy now pay later programs can leave you with major problems down the road, just like credit cards.