Exploring Buy Now, Pay Later Apps: No Credit Checks, No Worries?

It was late on Monday night after a wonderful Labor Day weekend. 

My plans for getting to bed early and starting my short work week off right were completely out the window. 

It was nearing midnight and I was on my phone doing something I shouldn’t have been doing.

Scrolling the Nike website looking at shoes I didn’t need. 

That’s when I realized just how common buy now, pay later has become.

I pulled up a few other e-commerce websites I frequent and sure enough, each of them had an option. 

My initial thought was: “Wow, that's pretty cool.”

A young kid who dreams of wearing the same Nike soccer cleats his favorite player wears just became a little bit more attainable for a family who might not normally be able to afford such a luxury.  

Then I realized that the same BNPL service available for those $200+ cleats is also available for a $22 pair of socks. 

I found this slightly concerning. 

Spreading out payments on a big purchase that you feel like you need seemed fine to me—but spreading out payments on a small purchase like socks just seemed flat dangerous. 

This was the moment when I started to realize that maybe these BNPL offerings aren’t quite as appealing as I had originally thought.

What is buy, now pay later?

Buy now, pay later services allow users to do exactly that, buy now—pay later. With BNPL, users can spread out payments over a period of time to avoid one lump payment.

The idea is to help people who may need financial assistance when making a purchase.

With inflation and the cost of living rising at such high rates, platforms offering services like buy now, pay later are becoming more and more popular.

In the past, it was common to see buy now, pay later offers on things like mattresses, ovens or other large purchases one might need for their home. Nowadays, we're seeing more and more buy now, pay later options on various products. Some of which you might even find hard to believe.

Some people see buy now, pay later as a viable financial resource which can come in handy at times but it's important to remember what buy now, pay later truly is at its core, another debt stream.

Yes, buy now, pay later services may be able to help with certain timely purchases but when taking on any form of debt, it’s very important to stay mindful of your payments and be proactive about any potential mishaps.

Neglecting payments or taking on too much debt can become tempting for some when dealing with tools like BNPL but will end up costing you much more money (and time) down the road.

Do buy now, pay later loans affect your credit score?

Some buy now, pay later providers do require credit checks while others do not.

When considering a buy now, pay later option, it is extremely important to do some research beforehand.

Like any financial obligation, be sure to read the fine print and ask yourself the right questions, like:

Does this provider perform hard credit checks?

Certain buy now, pay later providers do perform hard credit checks, which will negatively affect your credit score.

If you've found a potential provider but aren't sure where to find the right information, go to their website and scroll to the bottom. In the footer, there should be information for you with a link to "Learn more" or "How it works" where you can learn more about how these programs work.

These pages should have all the information you need regarding credit checks.

What are the penalties for late payments?

Some providers do advertise things like never charging fees, but it's not always quite that simple.

Although these companies are very transparent with their fees, missing payments can still cost you.

Affirm for example will never charge you late or underpayment fees and will even work with you to change your repayment dates—but a failure to make these payments in a timely manner will affect your ability to take another BNPL loan from them.

Missing payments completely could result in your buy now, pay later provider turning your debt over to a debt collector.

This will cost you more time and money and will negatively affect your credit score.

What do major credit bureaus think about buy now, pay later?

Depending on the credit bureau, your buy now, pay later provider reports to, they could have a positive impact on your credit score.

Experian Boost is a product offered by Experian that allows other bills like rent, subscription fees and less traditional transactions to affect your credit score.

Buy now, pay later loans would fall into this category and managing your payments responsibly could have a positive effect on your credit score.

But it is very important to remember: 15% of your FICO score is determined by the length of your account history.

Repeatedly accessing buy now, pay later loans could lower your account's average age calculation which would negatively affect your credit score.

If you do decide to go with a buy now, pay later solution, be sure to check your credit score regularly!

Do you really need to buy now, pay later?

The convenience of buy now, pay later can be extremely enticing when sitting on a checkout page.

"Splitting up this payment could make things a little easier to manage," one might think to themselves—but what happens when that one easy-to-manage transaction snowballs into more?

Like any debt stream, buy now, pay later transactions can quickly become a slippery slope.

Some of the greatest perks of buy now, pay later like convenience and ease can quickly become a problem if not handled properly.

Be careful and stay mindful when using resources like this.

Even if buy now, pay later loans have worked well for you in the past, we feel it's important to review the pros and cons on a case-by-case basis.

When to use and avoid buy now, pay later

Buy now, pay later services do offer some advantages over the alternatives. The convenience and ease in having a buy now, pay later option right at checkout is unmatched.

Companies that offer flexible payment like BNPL are generally transparent about their structuring, whether it be prices, repayment dates or flexible payment plans which can feel very refreshing in the world of loans.

The ability to work with your buy now, pay later provider on a repayment plan may also be beneficial at times.

If you're truly in need of that convenience, with the ability to stay mindful of that and any other current debt streams, then maybe a BNPL option might work for you.

If you have problems managing debt and are struggling financially, a BNPL payment plan will only cause more financial trouble and we would strongly suggest against them.

How to responsibly use buy now, pay later services

Let's think of a hypothetical situation.

You just started college. You've spent thousands of dollars on tuition, books, rent and getting everything ready in your new living arrangements. Your budget is tight, but you have enough to get by. Your financial situation isn't quite ideal but you are staying on top of your payments.

Then your laptop breaks the week before classes.

You know you have money coming in but your credit cards are nearly maxed and you've asked all your friends and family for money already.

The laptop is essential to your education and you've figured out a way to fit a buy now, pay later option into your financial plan and you don't have many other options.

This might be a reasonable use case for a BNPL loan. But first, ask yourself these questions:

• Is this purchase essential to my wellbeing?
• Do I have a plan in place to make my repayments?
• Do I have any other more viable options?

Closing thoughts

When it comes to anything in life, if it seems too good to be true—it probably is.

Sure, a buy now, pay later solution may work for you or some people you know at certain times but they are definitely not some magical tool that will allow your spending to go further.

They are simply a financial resource that in the right situation, may become a viable option for you.

Our main concern regarding BNPL loans comes down to sustainability. Although they may work for you in certain situations, we feel your financial resources should offer you support that is sustainable and will be able to help you consistently.

A proper financial resource should never put you at risk of accruing unnecessary debt but with buy now, pay later, that discretion is left to you.

Stay mindful and be careful. 

If you or your employer is interested in a more sustainable financial resource, Earned Wage Access allows you to access a portion of your pay before your paycheck arrives. With a small, flat rate, EWA allows users to avoid unnecessary fees, while also giving them access to their finances to help ease cash flow issues. 

To learn more, tell your employer to get in touch with us here.