Atlantic Blog

The BNPL option can provide a win-win for both retailers and consumers: 

• Merchants love the program because it allows customers to make purchases they might otherwise not be able to afford. It can lead to increases in sales and fewer abandoned carts online. 

• Customers can enjoy their purchases immediately and pay for them over a designated period. As long as payments are made on time, they will not incur any interest or fees.   

The Perks of Buy Now, Pay Later 

You're probably already beginning to see why this program is starting to grow in popularity. Let's review a few additional benefits available: 

• Convenience: Most retailers have the BNPL option available when checking out, both online and in-store. Approvals are usually instant without the need to apply like a traditional loan or credit card.   

• No Credit Check: Most BNPL companies do not check your credit score when enrolling in their program. This feature can be beneficial to those people with less-than-stellar credit histories. 

• Pay Over Time: Similar to credit cards, you can pay for the product or service over time. You're only required to make a minimum monthly payment with credit cards, which can take as long as you want to repay. BNPL, on the other hand, typically breaks the expenses into four equal installments. Depending on your purchase amount, these payments may be required weekly or monthly.  

• No Interest or Fees: As long as you make each payment on time, you will not be charged any interest or fees.   

The Drawbacks of Buy Now, Pay Later 

While the benefits of BNPL may have you hooked, there's always a catch. Here are a few reasons you should stop and think before you jump right in with BNPL payments. 

• Lack of Regulation: Currently, the BNPL arena is very similar to the wild west. There is practically no federal oversight, causing many fintech companies and financial institutions to jump in. Without federal regulations, each provider can make its own rules, policies, and pricing structures, which ultimately limits the power of the consumer. 

• A Multitude of Providers: While you may be familiar with one BNPL service, not all are the same. Without uniform rules or policies to govern these programs, consumers can make costly mistakes when one provider's rules differ from others.   

• Payment Structure: The lure of paying no fees or interest hooks consumers. But the real catch is when people regularly use this payment option.  

• Difficulty Managing Multiple Payments: When purchasing an item using BNPL, the payments typically start immediately and are spread over four installments.  

Suppose you use BNPL to buy three different items on different days. Each will have four installments or payments – leaving you with 12 separate payments to manage. This can quickly become confusing and financially tricky to accomplish.  

• Costly Fees: While BNPL lures you in with the promise of no fees or interest, that is only true if you make your payments on time.  

Using the example above, imagine making 12 payments on time while managing your daily finances. It can become highly challenging. Missing one payment can result in costly fees of up to $29. But, more so, missing one payment can lead to a chain reaction that causes a multitude of missed payments – resulting in an avalanche of costly fees 

• Psychology Factors: The BNPL structure is very much a mental game. By breaking the price into smaller amounts you can repay over time, your mind believes the purchase is more manageable. However, you should always ask yourself, "If I cannot afford this item now, will I be able to afford it over the next several weeks?” 

• Effect on Credit Score: Although BNPL programs typically do not rely on your credit score for approval, they often report missed payments. When you have multiple payments to manage (usually four installments per item), you may miss a payment and damage your credit. 

Using the example in "Payment Structure" above, managing 12 payments can be tricky. Missing one can cause a domino effect in costly fees and missed payments on your credit report. Checking your credit score is easy with SavvyMoney in your Atlantic Digital Banking app.  

Takeaway 

Buy Now, Pay Later programs were initially designed for big-ticket items like a new washer or dryer. As long as you make the payments on time, it can be a great way to avoid paying interest on credit cards.