The risks and cons of using Buy Now Pay Later companies.
Buy Now Pay Later, commonly referred to as BNPL, can provide a convenient, attractive way to shop/buy for what you want now and pay for it later. However nearly one in four users reported paying late, and more than half of those late payers said they were charged extra. Those numbers underscore why understanding the downsides matters and learn more on risks/cons of Buy Now Pay Later when you shop.
BNPL has grown quickly and is now a fixture at major retailers online and in stores. The typical structure is still the “pay-in-four” model: a 25% down payment at checkout, then three equal payments over roughly six weeks. The Federal Reserve’s 2025 “Economic Well-Being” report finds that 15% of adults used BNPL in the prior 12 months, up from 14% in 2023 and 10% in 2021.
However, BNPL companies and the apps have risks and drawbacks. The Consumer Financial Protection Bureau shows many of the cons to BNPL. The list of challenges is extensive but includes late fees, negative impacts on credit reports, high interest in some cases, and pay later services can encourage consumers to make impulsive purchases that accumulate additional debt a buyer really can't afford.
Potential fees and interest risk of using BNPL
It’s true that many pay-in-four plans do not charge interest when you pay on time. But fees and interest can still show up depending on the BNPL company, the plan you choose, and whether you miss a due date. Some examples include the following.
Klarna discloses a late fee of up to $7 per missed pay-in-four installment. Zip’s U.S. help center states a late fee of up to $7 per missed installment. Sezzle’s legal page lists late fees up to $16.95 in the U.S. Affirm’s model is different: it advertises no fees at all, but some monthly plans charge interest, with APRs that can range up to 36% depending on eligibility and merchant offers. PayPal’s Pay in 4 advertises no sign-up or late fees and says eligible purchases carry PayPal Purchase Protection.
Other Buy Now Pay Later companies can charge fees too - always read the fine print.. We do haver a summary - guide of BNPL companies and their services too. As these policy differences are central to your out-of-pocket cost if anything goes wrong.
More challenging to get a credit or refund on product returns
There are administrative (in particular returns) and legal risks to using BNPL that aren’t obvious at checkout. Historically, many returns and disputes in BNPL ran through the merchant (such as a credit card company) first, causing delays and confusion while automatic payments continued to hit your account. However when it comes to product returns and getting a credit for said return the Buy Now Pay Now Industry is still evolving - hit or miss.
Returns can come with friction. Often, when you need to return an item that you've paid for with the BNPL method, it isn't as simple as it is with a credit card. You don't just return the item and have the retailer and the credit card company sort it all out. Often, you need to call the lender (buy now pay later company) and ask them to freeze the payment schedule. Then the BNPL company needs to to back to the original retailer and work out the details with that store - the process takes time. While returns may become smoother in the future, they can be somewhat problematic with the current system.
- The CFPB’s market study (referenced above) documented that BNPL lenders commonly instruct customers to resolve returns with the merchant first, and only then will the lender adjust the loan, sometimes after a lag. That lag can mean scheduled payments keep drafting while you wait for the credit to post.
The bottom line is that protections are improving but may not mirror traditional credit cards in every situation yet. For most people, this means if you buy something and/or are contesting a charge, it may be more challenging to get a refund using BNPL. The process may still involve the lender, the merchant, and you so not as simple as dealing with say a credit card company.
Missing a Buy Now Pay Later payment can lead to hardship
Missed payments can snowball quickly. BNPL loans often require autopay from a debit card, bank account, or card on file. If your account doesn’t have enough funds on the due date, you can be hit twice: once by a BNPL late fee and again by an overdraft fee from your bank.
- Missing a payment may result in multiple negative financial consequences. If you set up automatic payments from your bank account, and the account lacks sufficient funds on the day payment is due, you may have to pay a bank overdraft fee as well as a BNPL late fee.
The Federal Reserve reports that over 11% of banked adults paid an overdraft fee in 2024, a reminder that closely tracking cash flow matters when multiple BNPL payments are hitting in a short window. The CFPB’s 2025 report also shows heavy BNPL users tend to carry higher balances on other unsecured debts than non-users, which can make unexpected expenses harder to absorb. However there are ways to get help from BNPL companies as well as credit counseling or other options.
Overspending when “buying now and paying later”
While versions of BNPL programs have been around in various forms for some time, there are many more companies, stores, apps and even other places (like apartments!) offering this type of service now which in some ways is a risk - as it can lead to “overspending” - even impulsively or the mindset of “keeping up with the Joneses”.
Consumers can instantly purchase goods with installment payments. Buy Now Pay Later is a little different than credit cards as there are rarely credit checks done by the company offering the service, which can be risky. As it can lead to shoppers taking on more debt than they realize, which can lead to fees, interest being charged, and other downsides.
People sometimes/often pay by the BNPL method because it makes things look cheap. This, in turn, makes them spend more on goods or say impulsively buy more clothes and cosmetics than they would otherwise ever dare to. The BNPL payment method can help you if you really need something important; if you use it to make purchases that aren't really meaningful, however, you will end up with less money for essentials.
BNPL plans can encourage impulse buying, purchase of non-essential items, and overspending. The apps are simple to download and use for shopping and even gamify the experiences, which are all risky. For example, if you're working with a $100 budget, you might choose to buy a $100 item using Buy Now Pay Later and get it for $25. That leaves you $75 to spend, making it attractive to buy three more $100 items and make 25% down payments.
When you choose a BNPL payment method, the weekly installments often seem small enough that you don't see why you would ever need to worry about being able to afford them. Many people, however, are so happy with this frictionless way of shopping that they buy too much, too quickly, without thinking about how all those installments add up to a lot of money each week.
It can be hard to keep up with the repayment schedule. If you allow yourself to go crazy buying lots of stuff at different stores on BNPL, you might have a hard time making sure that your account is properly funded, and your cash flow is adequate, to make all the payments at the right times.
- Many people use Buy Now Pay Later for more expensive items, such as electronics, jewelry, beauty products and similar goods. However almost anything can be paid for using a Buy Now Pay Later app, even including groceries, rent or gasoline. While most programs don't charge interest or fees when payments are made on time, which is of course a pro of using Buy Now Pay Later when shopping. For a responsible consumer with the ability to pay off a purchase in six weeks, BNPL services may be a desirable way to make large purchases.
Easy access to credit is both a con and pro (in some cases), so it is mixed. But it can be a benefit though. BNPL providers typically only do a soft credit check if they do a credit check at all, so your credit score is usually not negatively affected, or at least not until you miss a payment. This makes BNPL an attractive source of financing for people with bad credit or little credit history.
Other downsides of BNPL to consider
Another con is that BNPL financing is more likely to hurt your credit score than improve it. Responsible and regular use of a credit card can help to build a credit score and improve your ability to obtain financing for big-ticket items like vehicle loans and mortgages. Unlike credit cards, on-time BNPL payments are generally not reported to credit bureaus (as the industry evolves), so the responsible use of BNPL does not improve your credit score.
BNPL companies don't usually offer the same amount of rewards, sign-up bonuses, or cashback programs that are commonly available with credit cards. As there are many cash back award companies out there. Or the incentives and rebates are much lower. Many credit cards offer purchase protection plans for damaged or lost items while BNPL programs, other than PayPal, typically don't provide that benefit.
Choosing BNPL as a payment method after maxing out your credit card isn't good. If you have a problem controlling a shopping habit, Buy Now Pay Later loan or payment schedule can make it worse. If you're inclined to choose the BNPL way to make a purchase because your credit cards are maxed out, it would be a good idea to stop yourself before getting any deeper into debt.
Be mindful of potential economic or personal employment issues. As you never know how things might change or what sort of financial catastrophe might come up. The longer you're on the hook for payments, the more opportunity there is for some sort of event of this type. You might suddenly find yourself unable to pay for several months, which turns that initial good deal into a financial nightmare as you watch the interest and fees pile up.
Minimizing the risks
There are several ways to reduce the risk of missing payments and incurring fees. Before you buy using a pay later service, determine if you'll have the financial resources (namely future income) to cover the remaining payments as they come due. Keep in mind other monthly bills, consider saving money and think about all future expenses you need to pay as well. Review the terms of the BNPL program before using it. Are late payments reported to a credit bureau? How much are fees for missed payments?
- Automate your payments. Most consumers are used to making credit card payments once a month. Short-term BNPL purchases requiring payments every 1-2 weeks can lead to confusion, especially if multiple BNPL services are used at the same time. To avoid that, schedule automatic payments from your bank or credit card. Set up reminders on your smartphone or computer.
- Pay off the full BNPL balance ahead of time. There is usually no penalty for early payment.
- If you're offered multiple BNPL options at checkout, it's usually wisest to choose one with 0% interest as long as you can make the payments when due. It is risky to use more than app company or app to shop with.
- To reduce the temptation to overspend, wait for 24 hours after you put items in your online shopping cart. Review your cart the next day to determine if you need the items or were just excited about the possibility of getting more for what appeared to be less.
If used wisely and sporadically, BNPL financing can be an effective way to purchase items, particularly for consumers with poor or little credit history. The appeal of 0% interest and only needing to pay 15 to 25% of the item's price for immediate purchase is undeniable. So there are some pros to using Buy Now Pay Later shopping apps that allow you to pay the bill later over time.
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