Should You Ditch Credit Cards and Use ‘Buy Now, Pay Later’ Plans Instead? · Madam Money®

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There are pros and cons to going that route.

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If you’ve been hearing more and more about “buy now, pay later” plans, or BNPL plans, there’s a reason for it. These plans have become an increasingly popular choice among consumers over the past couple of years because they offer certain benefits that credit cards don’t.

For one thing, with a BNPL plan, you can avoid interest on your purchases entirely simply by sticking to a payment agreement and making your installment payments on time. You can also qualify for a BNPL plan on the spot, as opposed to having to apply for a new credit card and wait to get approved.

But should BNPL plans take the place of credit cards? Not necessarily.

Not a perfect solution

BNPL plans work sort of like a mortgage. You make a down payment on the item you’re buying, and then you pay the rest of your purchase off over time.

Only there’s a major difference between BNPL plans and mortgages and other installment loans. With a BNPL plan, you’re usually required to pay off your purchase within a short period of time — often, 12 weeks or less. And that doesn’t give you all that much wiggle room.

Let’s say your washing machine breaks and you need a new one, only you can’t afford to plunk down $900 on the spot. If you charge that washing machine on a credit card but don’t pay off your balance by the time your bill comes due, you’ll start to accrued interest on that balance. If you use a BNPL plan for that washing machine purchase and pay it off in three months (or however long your BNPL plan calls for), you won’t accumulate interest at all.

But if you can’t swing the cost of a $900 washing machine today, chances are, you’re not going to magically come into the money over the next number of weeks. So what could end up happening is that you fall behind on your BNPL agreement and then start to rack up interest and fees.

Plus, when you don’t keep up with a BNPL plan, it gets reported as negative activity on your credit report, the same way you’d get dinged for being late with a credit card payment. On the other hand, if you make your minimum credit card payments, you’ll be considered to have paid on time.

You’ll miss out on different perks

Not only can BNPL plans be risky, but these agreements don’t allow you to accrue rewards or cash back on purchases like credit cards do. So if you’re buying an essential item like a washing machine, you might as well get something out of it.

All told, BNPL plans can be a good solution in limited situations, but they’re not ideal. And they shouldn’t necessarily take the place of swiping a credit card.

If you’re buying something you’re truly convinced you can pay off in two or three months and you want to avoid credit card interest, then a BNPL plan may be a better way to go. But if you’re signing up for one of these agreements, make sure to first comb through the details carefully so you know what you’re getting into and there are no surprises.

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