What To Know About Buy Now, Pay Later, According To Financial Experts 

Just because something is popular doesn't mean it's right for you. This goes for the latest hairstyle, clothing, and even your finances. 

Buy now, pay later (BNPL) is trending big time. According to a 2021 Credit Karma survey, 42% of the people they polled had used BNPL at least once. Then there's Juniper Research's findings that projected that the number of users will eclipse 900 million globally by 2027, up from 360 million in 2022, a 157% increase.

You fill out a short application on the checkout screen when you're making a purchase. You'll get an approval or denial quickly. If approved, you typically pay the first payment at the checkout, either online or in person. The rest of your payments can be made however you have requested, like via your credit card or directly from your bank account. Some of the key providers of these loans are Afterpay, Affirm, and Klarna. They each work a bit differently, so read the fine print. 

Utilizing BNPL does not require having or being eligible for a credit card, which is a plus for those who may not have the best credit. The BNPL provider may or may not report payment activities to the credit bureaus.

"Depending on the provider, applying to use BNPL could be a credit inquiry that is reflected on your credit report. It may show on your debt utilization, and late/missing payments could hurt your credit," says Kendall Meade, a certified financial planner with SoFi, a provider of digital financial services.

Consumer finance and budgeting expert Andrea Woroch says one benefit of using BNPL is that you know exactly what you owe each month and when the total purchase will be paid off since the total purchase is broken into several equal payments. It's unlike a credit card, where you pay what you want or can afford each month as interest piles up.

In Medina's opinion, "the pervasiveness of the BNPL option at every checkout point, from expensive online brands to coffee shops, makes it increasingly easier for a person to make the impulse decision to purchase something they can't afford and don't need." 

It's not uncommon for people to try to juggle multiple BNPL plans at once. "That's when it gets risky. It's easy to fall behind, which tacks on late fees from the BNPL provider and penalties from your financial institution," says Keith Sultemeier, president and CEO of Kinecta Federal Credit Union.

BNPL can lead to overspending. "You're more likely to buy an expensive item you can't afford when you choose BNPL because the smaller monthly payments make that item seem more affordable, but you don't take into account the total amount you will spend," says Woroch.