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If you shop online, you may have noticed an option to split purchases into multiple payments using something called buy now, pay later (BNPL). BNPL services essentially provide short-term loans, allowing you to finance purchases in four or more interest-free installments — often without fees.
As the holiday shopping season ramps up, BNPL services may seem like an attractive option to break up expenses into manageable payments and ease your holiday budget. In fact, half of consumers plan to use BNPL as a flexible payment option for holiday shopping this year, according to PayPal’s 2025 Holiday Shopping Survey. Additionally, 52% of shoppers say they're more likely to make a purchase when BNPL is available as a payment option.
While an interest-free loan may sound great for your budget, you can still get burned by BNPL. According to a recent LendingTree survey, 41% of BNPL users reported making late payments, which can result in fees and delinquencies.
So, is BNPL a convenient financing option — or a debt trap in disguise? Read on to learn how BNPL can either help or hurt your budget, plus ways to use it responsibly.
What is buy now, pay later?
Buy now, pay later loans are short-term loans you repay over a series of equal installments. Popular providers include Affirm, Afterpay, Klarna, and PayPal.
Many BNPL platforms offer a “Pay in 4” plan, which splits your purchase into four equal payments spaced two weeks apart, though some services offer a range of terms to choose from.
BNPL loans are also known as point-of-sale loans because your first payment is often due at checkout. You then pay the remaining installments over the following weeks or months.
Unlike credit cards and personal loans, BNPL loans are often interest-free. However, many BNPL platforms charge fees, including late fees, origination fees, and fees for changing the payment date.
BNPL also differs from more traditional methods of borrowing because most platforms don’t require a hard credit inquiry to get approved. However, though BNPL providers have historically not reported to credit bureaus, this is becoming more common, meaning your borrowing activity can impact your credit score.
How does BNPL work?
When shopping online or using a retailer’s app, you may come across the option to use BNPL at checkout. You can also use a BNPL service’s physical or digital card when shopping in person.
BNPL approval is usually instant. This means you can apply for a BNPL loan at the point of sale, get approved, and complete your transaction in a matter of minutes.
Here’s an example of how it works: Say you purchase a couch online for $2,000. You select a BNPL service with a Pay-in-4 model at checkout, in which case you’ll owe:
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$500 immediately
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$500 in 2 weeks
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$500 in 4 weeks
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$500 in 6 weeks
After making your first payment at checkout, subsequent payments are usually billed automatically. So, while you don’t need to make each payment manually, you do need to ensure you have enough money in your bank account or enough credit available on your card (depending on the payment method you selected) to cover payments.
How BNPL can help your budget
BNPL loans can be convenient. Here are some ways they might help your budget:
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Splitting up your payments: If you need to make a purchase that’s going to stretch your budget too thin, a BNPL loan can ease the stress by breaking up a larger expense into smaller chunks over time.
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No hard credit check: Hard credit checks can ding your credit, especially when you face several credit inquiries within a short period of time. BNPL loans usually use a soft credit check to determine your eligibility, which means your credit score won’t be impacted.
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No interest: Most methods of borrowing include interest charges, which can add up, especially when making a large purchase or repaying it over a longer period of time. But with BNPL, you can avoid these extra costs by making timely payments.
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How BNPL can hurt your budget
Despite their benefits, BNPL loans can backfire. Watch out for these risks when using BNPL services:
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Easier to overspend: BNPL makes purchases feel cheaper because you only pay a portion of the cost upfront. However, research shows shoppers tend to spend more when BNPL is available, which can inflate your holiday budget without you realizing it.
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Late fees: Most people take on BNPL loans with the intention of making all their payments on time. But sometimes, plans get disrupted. Some BNPL services charge late fees, ranging from Zip’s $7 fee to Sezzle’s $16.95 fee. These fees can be disproportionately high in relation to an item’s purchase price, especially for smaller purchases,
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Potential to harm credit: In 2025, FICO announced plans to incorporate BNPL data into users’ credit scores. This means that if you miss payments or default on your BNPL loan, your FICO score could take a hit.
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Lack of consumer protections: Consumer protections aren’t as straightforward with BNPL platforms compared to other lending methods. For example, if you make a purchase with a BNPL loan and later return the product, getting your money back can be challenging. Fees and other charges can also be hard to understand.
BNPL alternatives
With smaller payments and no interest charges, you may be tempted to use BNPL to cover the cost of holiday gifts, travel, and more. But there are alternatives to consider, some of which may be better choices in certain scenarios. Here are some common BNPL alternatives:
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0% APR credit card: Certain credit cards offer a 0% APR introductory rate, which typically lasts anywhere from 12 to 21 months. As long as you pay off your balance during this introductory period, you can avoid paying interest — and potentially earn cash back or rewards at the same time.
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Personal loan: Personal loans are a type of installment loan used for a range of major purchases. You can typically borrow anywhere from $1,000 to $50,000, with repayment terms of up to seven years. Personal loan interest rates are often lower than credit cards, especially if you have good credit.
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Personal line of credit: A personal line of credit is similar to a credit card. It lets you borrow as needed, up to your credit limit, using special checks or account transfers. Like a credit card, you’ll receive a monthly bill with a minimum payment, and you’ll owe interest on your outstanding balance.
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Payday Alternative Loan (PAL): An alternative to the more expensive payday loans, PALs are available to members of federal credit unions. Loan amounts are small — between $200 and $1,000 — and repayment terms range from 1-6 months.
How to manage BNPL loans responsibly
If you decide to use a BNPL loan to finance a purchase, use the following tips to make sure it doesn’t hurt your budget:
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Don’t use BNPL for discretionary purchases. While BNPL can come in handy in an emergency, try not to finance discretionary purchases. Doing so can give you a false sense of confidence in your budget — only to realize you’re still paying off last month’s splurges when the new month hits.
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Don’t take out multiple BNPL loans at once. If you decide to use BNPL, use one loan at a time. Opening multiple loans can easily lead to missed payments and resulting fees.
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Check your budget first. Just because you can afford the first BNPL installment doesn’t mean the following payments will fit into your budget. Consider a purchase’s entire price and whether or not you’ll be able to keep up with additional payments. If not, you may be better off saving up and paying in full.
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Understand the terms and fees. Each BNPL service works a little differently. Make sure you understand a platform’s fees and repayment terms before signing up.
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Use a service with no fees or interest. Ideally, BNPL allows you to borrow without additional charges. When possible, choose a BNPL platform that charges no interest or fees.
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