BNPL, or buy now, pay later, services are not just about swiping your card for that late-night pizza. They’re also a financial risk that can have far-reaching consequences.
Why BNPL is a financial risk
Imagine you’re about to finalize a loan and the lender suddenly quotes a higher APR than you expected. You’re surprised, disappointed, and wondering what happened. “Well,” the loan officer explains, “There’s a delinquent buy now, pay later loan on your credit report that dropped your credit score a notch below the range needed for our lowest rates.”
The small buy now, pay later loan you forgot to repay is coming back to bite you.
BNPL for food is particularly problematic
1.
- Using consumer loans can be a good option if you’re able to secure a competitive interest rate for funds that fulfill a need or help you meet a financial goal, but BNPL for food delivery is not a good use of your funds.
- Borrowing to pay for food is a sign that you need to shore up your personal finances, such as creating a budget and relying on solutions that don’t involve incurring debt.
- BNPL for food delivery fills your stomach, but it doesn’t fill your fridge or address your underlying financial issues.
Accessibility of BNPL can lead to accumulating debt
2.
- The accessibility of BNPL can lead to accumulating debt, especially for those who are financially secure and don’t rely on BNPL for pressing needs.
- A report from the Consumer Financial Protection Bureau (CFPB) highlighted some of the most worrisome BNPL trends, including:
- BNPL users are more likely to have higher amounts of consumer loan debt than those who don’t use this form of financing.
- BNPL users are more likely to have subprime credit scores (below 620).
BNPL lacks consumer protections of credit cards
3.
- The plastic in your wallet might be a safer option, assuming you can zero your monthly balance, but BNPL lacks the consumer protections of credit cards.
- The Consumer Financial Protection Bureau (CFPB) attempted to mimic these protections for BNPL via an interpretative rule, but the rule was withdrawn.
- Without these protections in place, BNPL customers may experience:
- Problems with refunds and returns.
- Difficulty obtaining billing statements.
- Issues with dispute resolution.
BNPL can harm (but won’t improve) your credit
4.
- Historically, the thread between your credit and BNPL has only been knotted on one side: make your payment on time, and move on without a record of it.
- But if you become delinquent, your late payment could be reported to the credit bureaus, taking up residence on your credit report and damaging your credit score.
- As of April 1, some BNPL lenders are reporting customer accounts to Experian, which may impact your credit scores.
Key Takeaways
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- BNPL is not just about swiping your card for food; it’s a financial risk that can have far-reaching consequences.
- Using consumer loans can be a good option if you’re able to secure a competitive interest rate, but BNPL for food delivery is not a good use of your funds.
- BNPL can lead to accumulating debt and harm your credit.
- BNPL lacks consumer protections of credit cards.
- BNPL can harm (but won’t improve) your credit.
About the Author
The author is a personal finance expert who has written extensively on the topic of BNPL. They are not affiliated with any BNPL lenders or financial institutions.
Additional Resources
For more information on BNPL and its impact on your finances, please visit the websites of the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC).
news is a contributor at CreditOfficer. We are committed to providing well-researched, accurate, and valuable content to our readers.
