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Does “Buy Now, Pay Later” Affect your Credit Score?

Budget and Save

Buy Now, Pay Later (BNPL) financing options allow consumers to make purchases in installments. But how does it impact your finances?

Buy Now, Pay Later (BNPL) financing is becoming very popular amongst online buyers and is one of the fastest growing industries in the world. BNPL allows consumers to loan money at the point of purchase and pay it off through installments over a set period of time–often without accruing interest. Here is what you need to know about Buy Now, Pay Later options and how to use them.

What To Know

Here are a few key points to know when getting started with Buy Now, Pay Later:

  • A down payment is generally made towards the product at point-of-sale
  • Some BNPL options do not positively affect your credit score, but they can all negatively affect your credit if you don’t make payments on time
  • A BNPL can be paid off in full at any time, you do not have to wait for the loan intervals
  • Every BNPL is different so make sure you understand the repayment terms before utilizing any of them

What Are Your Options?

There is a wide array of options when it comes to Buy Now, Pay Later companies out there. Most options including Afterpay, PayPal, Klarna, and now Apple, utilize a four-installment process that accrues zero interest. Other companies like Affirm opt for a more traditional point-of-sale loan method which allows consumers to make more payments of smaller values, although this normally includes an interest payment. If used correctly, both options could be helpful for you depending on your current financial situation and needs.

Four Payment Methods

Organizations which offer the four payment method loans allow interest-free payments through thousands of companies, and are often much easier to apply for than the more traditional alternative. There are a couple things you need to consider and watch out for when paying this way:

  • These loans do not report to any form of central repository which means you can take out several loans at a time. This can be useful if you are trying to buy several gifts over the holidays or pick up new clothes for work. However, it can also leave you with a large number of payments that can be hard to manage.
  • These companies do not charge interest but they do have late fees and failing to stay on top of your payments can result in a lot of financial stress.
  • If you fail to make a payment to the BNPL provider, most providers will add the payment amount to the next scheduled payment. If that amount remains unpaid, the outstanding debts will sent to a debt collection service, and could be reported to the major credit bureaus.
  • There are four 25% payments made, but they can come in different intervals. Make sure you know how often the payments need to be made before going through with a purchase.

If you’re considering using a BNPL service, be sure you’ll be able to cover the purchase and make payments. If you don’t overextend yourself, four payment BNPL financing can be a useful solution for larger purchases.

BNPL Infographic

Other Options

Some BNPL companies offer a more traditional loaning standard and do accrue interest. These payments can be extended up to 48 months in some cases and may not require an initial payment. Because of the more traditional style of financing, these loaning services generally require a credit check and report your information to the major credit bureaus.

They can be great if you are trying to build credit as they are generally easier to apply for than credit cards or larger loans. As with any other loan, staying on top of your payments and trying to make more than the minimum payment can help reduce interest charges and make this a versatile option for your financing needs.

Things To Remember

Not all BNPL services are made the same. Make sure you get to know the service you are using before making a purchase. BNPL is one of the fastest growing industries in the world because it can make financing simple and accessible. Being smart and engaging in healthy financial practices can make BNPL a financing option for many situations.

The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its subsidiaries and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.