Key Takeaways
- Buy now pay later (BNPL) is widely used because it seems simple: 87% of users mentionspreading payments and convenience.
- Nevertheless, specialists caution that BNPL may lead to financial difficulties for numerous individuals, as frequent users often have unstable financial situations.
You're browsing holiday offers on your phone when a $200 gift appears as four "simple" installments of $50—no interest and no credit verification required. Just click and you're all set.
However, the bills that become due later will not be handled by you. In the 2024 holiday season alone, Americans spent a record $18.2 billion through buy now, pay later services, representing an approximate 10% increase from the previous year, with another 11% rise expected this upcoming season according to Adobe Analytics.
"BNPL is promoted as a financial management toolbut for many young users, it turns into a trap," says Abigail Wright, Senior Business Advisor at the Chamber of Commerce. "The real problem isn't just using it too much, it's not realizing how fast small charges add up.
Splitting Payments Now, Regretting Later
BNPL allows you to purchase a new device immediately and pay for it in several fixed installments, typically without interest when payments are made on time. According to recent Federal Reserve data, 15% of U.S. adults utilized BNPL in 2024. The Fed's survey revealed that 87% of BNPL users opted for it to manage their payments over time, while 82% found it to be a convenient option.
BNPL companies often provide "pay in four" options. Promoted as free of interest, many customers view it as a simple method to make purchases without additional costs. For individuals struggling financially, paying $25 every two weeks instead of $100 upfront can be a crucial support.
Credit, Missed Payments, and Financial Loss
The Federal Reserve discovered that in 2024, approximately one-quarter (24%) of buy-now-pay-later users missed at least one payment—an increase from 18% the previous year. More than half of these users were charged additional fees, creating a significant financial trap for many individuals.
People who use buy now, pay later services are already in a financially delicate position. A Federal Reserve study shows that BNPL users have significantly less savings and are much more likely tocarry credit card debt.
One issue is excessive spending. Since the payment is divided, it seems less uncomfortable, particularly if you aresplitting up BNPL borrowingAcross various platforms, Wright stated. "You end up with four or five active loans without realizing it."
Wright cautions that the ease of BNPL services hides specific risks for younger buyers. "Gen Z has come of age in a digital environment where convenience is key. BNPL aligns with their way of life, but without"strong financial literacy, it can lead to debt before they even notice what's occurring," she says.
Check for offers and make arrangements ahead of time—avoid waiting until the last minute for major purchases, as the urge to get something under the Christmas tree for a family member could lead you to take on unsafe financial options.
Budget Better, Buy Smarter
What's the answer? Return to fundamentals. Create a budget by determining what you can truly afford (covering bills, transportation, and vacation costs) before beginning any shopping. Think about using a specific amount in cash or on your debit card, along with alerts to maintain awareness of your spending.
Be imaginative with your gift choices. The Consumer Financial Protection Bureau even encourages going beyond the typical (gift) box: often, a handcrafted item or an experience (like movie tickets or a day trip) is more affordable and holds greater significance than another electronic device.
If you require additional points, utilize alow-interest credit card wisely—settle the balance in full each month quickly to avoid interest—or start a smallspecial savings account for vacation costsseveral months ahead. Most importantly, Wright states, review the detailed terms regarding late charges, interest, or third-party debt collection, andbuild credit history separatelywith secure, easy-to-use credit options for newcomers.
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