If you happen to’ve ever signed up for a “purchase now, pay later” plan, or BNPL plan, you are not alone. As of 2022, 50% of shoppers had used a BNPL plan, in line with The Ascent analysis. And 39% of those that hadn’t used a BNPL plan to this point mentioned they’d be at the least considerably possible to make use of one over the next six months.

It is simple to see why so many individuals discover BNPL plans interesting. In contrast to bank cards, the place you accrue curiosity the second you do not pay a invoice in full, you do not robotically rack up curiosity with a BNPL plan. In reality, a giant draw of those plans is that you just will not spend a dime further in your purchases so long as you follow your compensation schedule, which normally has you paying off a given merchandise in 12 weeks or much less.

However there is a huge downside with BNPL plans shoppers ought to learn about. And the earlier you acknowledge it, the extra possible you is likely to be to keep away from a significant lure.

It is a signal that you must stroll away

One huge false impression about BNPL plans is that they are good for individuals who cannot afford their purchases in full. To be clear, they do help you purchase issues you’ll be able to’t afford to pay for in full. However when you’ve a non-essential merchandise you’ll be able to’t pay for outright primarily based on cash in your checking or financial savings account, guess what? You should not be financing that buy. As an alternative, you need to be strolling away and suspending that buy till you’ve the cash — all the cash — wanted to cowl it.

To place it one other means, you may assume that it is no huge deal to purchase one thing with a BNPL plan as a result of should you follow your funds, it will not price you something in curiosity. However that is a reasonably large “if.”

If you cannot afford a given buy on the time you are shopping for it, you threat falling behind in your BNPL plan funds. And if that occurs, you threat penalties like curiosity, charges, and credit score rating harm, since your delinquent funds shall be reported to the credit score bureaus the identical means late bank card funds are generally reported.

Emergencies are a unique story

In case you have a purchase order that you must make in a pinch that may’t be postpone, corresponding to changing an important family equipment that stopped understanding of the blue, then chances are you’ll need to think about using a BNPL plan as an alternative of a bank card to finance it, offered you assume you’ll be able to sustain along with your funds beneath your settlement. However you should not take a look at BNPL plans as a chance to purchase one thing non-essential you’ll be able to’t in any other case afford.

Even when, in that state of affairs, you do handle to maintain up along with your BNPL plan funds, you is likely to be placing your self vulnerable to falling behind on one other invoice. So usually talking, your greatest guess is absolutely to save lots of up forward of time for the stuff you need and resist the temptation to finance purchases that fall into that class.