Are you among the many individuals falling into Buy Now, Pay Later (BNPL) service traps? According to the Federal Reserve, 15% of Americans cited using BNPL services in 2024. While BNPL services are marketed as fast and convenient ways to manage spending, some Americans lean on these tools to smooth cash flow without analyzing the risks. Behind these flexible payment plans, the potential pitfalls include rising late fees, stacking debt, and more. 

Here are some things you should know about BNPL services to stay on top of your finances.

What is BNPL and how does it work?

• BNPL services allow you to break up purchases into multiple fixed payments, meaning four equal installments with no interest automatically debited from your preferred payment method. These short-term plans are appealing because they’re simple and typically don’t require a credit check, or at least not a hard pull.
• For larger purchases, longer-term BNPL financing can last 6 to 48 months. Depending on the provider, these often come with interest and fees. While short-term options are usually free if paid on time, long-term BNPL loans act more like traditional loans with variable interest rates.

What are the pros of BNPL services?

• When used correctly, BNPL can make budgeting easier. Splitting a large purchase into smaller payments can provide flexibility for shoppers with a steady income and a clear payment schedule.
• Many “pay-in-four” plans from providers like Klarna®, Afterpay®, or PayPal® don’t charge interest as long as each payment is made on time. Approval is usually quick and most BNPL platforms perform a soft credit check, meaning it won’t affect your credit score at the time of application. The structure of equal, scheduled payments can also appeal to people looking to avoid large, fluctuating bills. For some, it’s a more predictable way to manage spending.

What are the risks of BNPL services?

• Missed payments and late fees: Over 41% of BNPL users have missed at least one payment in the past nine months. Missed payments aren’t just short-term hassles; they can negatively impact your finances and creditworthiness. In fact, FICO (the American company that provides credit scoring services) announced in July 2025 that its next scoring model will include BNPL accounts.
• Steep interest rates: Longer-term BNPL loans can come with steep interest rates up to 36%. And while getting approved for one loan is easy, it’s just as easy to stack multiple loans simultaneously. In 2022, the average U.S. BNPL user took out nearly 10 loans, and one in five users took out more than twelve in a year. That kind of volume can quickly overwhelm your budget. 
• Potential credit risks: Affirm® has already started reporting newer loans to credit bureaus, and Klarna® sends unpaid balances to collections. This means that mismanaging BNPL services can hurt your credit in the same way as a delinquent credit card or loan. 

How to use BNPL responsibly.

If you choose to use BNPL services, there are several ways to avoid common pitfalls. 

• Start by limiting yourself to one BNPL loan at a time. This will help keep your payments manageable and prevent debt from snowballing. 
• Sync payment due dates with your payday, and set reminders or alerts so you don’t miss a payment. Since these loans auto-debit from your account, a low checking balance could still result in a failed payment. 
• Treat longer-term plans like any other loan. Compare Annual Percentage Rates (APR) and make sure you understand the full cost.
• Check your credit report every few months to see if any BNPL accounts have gone to collections without your knowledge. 
• If you’re staring down big purchases like a mortgage loan in the next six to 12 months, consider holding off on new BNPL debt. The added obligation could throw off your loan application, even if your credit score looks solid.
• As always, you should consult a financial advisor before making any decisions affecting your short or long-term financial goals.

Easy alternatives to BNPL services.

For many shoppers, the best alternative to BNPL services is preparation. Anything from starting a small emergency fund to using budgeting hacks such as envelope stuffing or the 50/30/20 rule can help you avoid BNPL services and their potential pitfalls.

The bottom line.

Before you split a payment into four, take a step back and consider the risks. Saving and budgeting may be smart for those working toward larger financial goals like homeownership or building long-term stability. BNPL services aren’t going away, but your financial health should always come first.

For more financial-savvy resources and tips, visit our Financial Health page at efirstbankblog.com.

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Published: August 21, 2025