Should You Be Splitting Up Payments?

It’s become so much easier to shop thanks to buy now pay later services; but do they make it TOO easy?

Buy now pay later (BNPL) services like Klarna, Afterpay and Affirm have recently become very popular. They make it possible to make purchases without paying in full right away or charging the entire amount to a credit card. Instead, they break up the payment into small, more manageable amounts.

Most BNPL services split up the cost over several payments scheduled two to four weeks apart. This payment schedule usually fits with biweekly pay timings, to help fill up your bank account before the next payment hits.

If you make your BNPL payments on time, you typically won’t pay any interest. Getting 0% financing is a big plus of course. If you’re looking to break up payments without a service fee or any interest, a BNPL deal can seem like a good idea.

Some BNPL services like Affirm don’t perform a credit check at all, which is great because it might be the only financing option for those who are new to credit or are rebuilding their credit. Other companies only perform a soft credit check, which doesn’t affect your credit score or history. This type of check is not formally recorded by credit bureaus.

This all sounds good so far, right? Yet there are major dangers: most BNPL companies can charge high penalties for late or missed payments as well as charging high interest rates. These fees can make your purchase more expensive than originally planned.

Also, there is the danger of bank account overdrafts. If you aren’t careful, frequent, automatically scheduled payments could increase the potential for overdrafts.

If you set BNPL payments to draft from your checking account automatically, it’s important to remember the schedule and make sure enough funds are in your account. Add these dates to your calendar and make sure you leave enough after each paycheck deposit to meet the next payment date, so you avoid late payments.

Because they make even big purchases seem possible and tempting, some say BNPL services encourage overconsumption and tempt you into impulse spending and buying.

The bottom line is that if you want to use BNPL services, it’s important to understand the terms and conditions, including the interest rate and repayment schedule, and you should most definitely have some sort of plan for how you will pay your installments.