If you shop online, you’ve probably seen that Buy Now, Pay Later (BNPL) plans have become very popular.
Most of these plans look tempting, with the promise of getting what you want right away and paying in 4 installments. But even though they’ve become more common, there are a lot of myths or unknowns when it comes to BNPL.
Let’s look at 3 of the most common BNPL myths.
1. BNPL doesn’t affect your credit score
It’s true that many BNPL plans don’t report regularly to credit reporting companies. If you’re trying to build credit history, that might not be a good thing. That’s because the on-time payments you make won’t go toward building your credit history.1
However, if you miss a payment or make a late payment, some BNPL may report those to credit reporting companies.2 And if debt from a BNPL plan goes into collection, it could also be reported.1
In 2022, Equifax, Experian and TransUnion announced plans to include BNPL payments in their credit reporting.3 That means future missed payments on a BNPL purchase are more likely to show up on your credit report and could hurt your credit score.
2. there’s no risk of debt or overspending with BNPL
BNPL may seem safe and convenient, but there are hidden dangers, especially if you make multiple purchases or use multiple plans. The Consumer Finance Protection Bureau (CFPB) points out that juggling multiple payments with multiple plans can become confusing and lead to missed or late payments.4
For example, if you buy three items on most traditional BNPL plans, you’ll have three separate fixed payments to keep track of. And as the total of payments stacks higher, you might find it harder to keep up.
By comparison, if you make multiple purchases using a Fingerhut Fetti Credit Account issued by WebBank, your monthly payments are based on your total balance and won’t stack up as high.*5
Another hidden danger of BNPL plans is lack of regulation. Unlike credit accounts and credit cards, most BNPL plans aren’t required to check your ability to repay before you purchase. That can lead to overspending and debt.6
3. there are no late or hidden fees with BNPL
Most traditional BNPL plans don’t make you pay interest or finance charges.
Most do charge late fees.7 Remember the risks of overspending we talked about? If you make multiple purchases and fall behind, you might end up paying multiple late fees.
And don’t forget, if you make automatic payments using your debit account or bank account, you could be at risk of overdraft fees if you don’t have enough money in your account.7
Plus, it may be harder to find out about hidden fees with BNPL. Most BNPL plans don’t have to follow the same Truth in Lending Act (TILA) disclosures as other credit accounts. That means you might not know or understand all the terms when you make a purchase using a BNPL. That could lead to unexpected charges.6
in the know
Now that you know more about BNPL and its myths, you can make better decisions when you decide to make a purchase.
*If you apply and are accepted for a Fingerhut Fetti Credit Account issued by WebBank, who determines eligibility and qualifications for the terms of credit.
1 https://crsreports.congress.gov/product/pdf/IN/IN11784/3
2 https://www.consumerfinance.gov/about-us/blog/should-you-buy-now-and-pay-later/
3 https://www.consumerfinance.gov/about-us/blog/by-now-pay-later-and-credit-reporting/
5 Based on purchases of $40 or more with a WebBank/Fingerhut Fetti Credit Account versus a traditional BNPL option that requires payments every two weeks.
6 https://www.consumerfinance.gov/ask-cfpb/what-is-a-buy-now-pay-later-bnpl-loan-en-2119/
7 https://www.consumerfinance.gov/ask-cfpb/do-buy-now-pay-later-bnpl-loans-have-fees-en-2118/
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