The Buy Now, Pay Later Holiday Trap

Whether you're on Social Security or working your very first job, retailers are making it easier for you to make immediate purchases. It's called buy now, pay later (BNPL), and it lets you purchase goods or services now and pay over time, typically in installments.

Thanks to tariffs and inflation, making purchases via BNPL has become a way of life for millions, with BNPL spending increasing nearly 21% between June 2024 and June 2025. It's no surprise that BNPL has become so popular, given how it works.

The BNPL application process is quick and easy, and you only need a 25% down payment. The remainder is typically repaid during a six-week period, with most BNPL providers charging no interest.

Let's imagine you use BNPL to purchase a $100 item. After making a $25 down payment, you will be responsible for paying the remaining $75 within six weeks. If you miss payments, you will likely face fees, and your credit score could take a hit (primarily if the debt is turned over to a debt collector).

When carefully managed, BNPL can be an excellent tool for holiday shopping. However, it's essential to recognize potential traps in order to sidestep them.

Image source: Getty Images.

Encourages overspending

Say you're shopping for someone you're close to and want to buy them something special. You've set aside $100 for the purchase, but nothing you find in that price range seems just right. You come across the perfect item -- a gift you know they will be wild about -- but it costs $275. By doing a quick calculation, you realize that if you use BNPL, you'll only have to put $68.75 down and make three biweekly payments of $68.75.

While you're pretty sure it's doable, you're still spending nearly triple the amount you planned on and may have to make up for it by cutting something else from your budget.

Offers immediate gratification

There's an adrenaline rush associated with buying for the people you care about, and even if you're short on cash, BNPL lets you feel the immediate gratification of making purchases for them. There's no dreaming about what you're going to buy; no saving up until you can afford it. It's available to you today.

While kids are famous for craving immediate gratification, learning to postpone gratification is a lesson most adults adopt to control their financial futures. Let's say you make a $275 purchase when you only planned to spend $100. Because those biweekly payments of $68.75 must come from somewhere, you've now put yourself in the position of deciding where to find the money.

If you're living on such a tight budget that you need to use BNPL (and let's face it, millions of Americans are), you may coincidently be sabotaging your household budget for the next six weeks by taking money from one bill to pay another. Getting caught up in a cycle of borrowing and repaying could prevent you from building an emergency fund or investing.

Can be expensive

Most BNPL providers don't charge interest if you make all payments on time. However, it's not out of the goodness of their hearts. BNPL providers know that a certain percentage of consumers won't be able to keep up with the payments, and the late fees and penalties charged are substantial. In addition to late fees, some lenders will switch you over to an interest rate of 20% to 35%.

It's imperative to read the fine print of your BNPL agreement before signing on.

Avoid the trap

The following tips can help you avoid spending more than you intend:

• Before agreeing to a BNPL plan, look at your budget for the next six weeks to determine if you can comfortably make all payments on time.
• Carefully track your payments to ensure none are missed. Automating the payment can help a lot.
• Always read the fine print. As with any financial agreement, it's vital to know what you're agreeing to. It's in the fine print that you will find details, including the payment schedule, late fees, penalties, and any potential impact on your credit score.

Whether you're shopping in an online mom-and-pop shop or a major retailer, don't be surprised to find a BNPL offer. Although there's nothing intrinsically wrong with BNPL, only you can decide whether it fits your budget.

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