Nov 19, 2024

Buy Now, Pay Later: Is Your Holiday Helper Hiding a Catch?

A woman's hand holds a phone with the words, "Buy now, pay later" on the screen.
The holiday season is a time for joy, togetherness and a little bit of chaos. Shopping lists get longer and budgets feel tighter, especially when you're trying to find that perfect gift for everyone on your list. Enter Buy Now, Pay Later (BNPL) services like Afterpay, Klarna and Affirm. It’s everywhere, offering instant gratification without the upfront cost. But is it really as good as it sounds?

Before you click that checkout button, read on to take a closer look at BNPL. It might seem like the perfect solution, but understanding the pros, cons and potential pitfalls can help you decide whether it’s the right move for your holiday shopping strategy or if there’s a better way to spread holiday cheer without the financial stress.

What Is Buy Now, Pay Later?

If you’ve ever shopped online, you’ve probably seen BNPL pop up at checkout. BNPL services let you break up your total purchase into multiple payments, often with no interest, at least at first. It sounds simple: take home your holiday haul now and pay for it over time. But while the concept seems straightforward, BNPL comes with strings attached, ones you may not notice until it’s too late.

Why It’s Popular

BNPL’s appeal is clear:

  • Low Commitment: Many services don’t require credit checks, making them accessible to almost anyone.
  • Flexible Payments: Splitting costs into smaller amounts can feel easier on the wallet.

  • Instant Gratification: Get what you want now without waiting to save up.

But just like that sweater that looks great online but doesn’t quite fit, BNPL can come with surprises.

The Hidden Risks of BNPL

BNPL isn’t a holiday villain, but it’s not a hero either. Here’s why you should proceed with caution:

1. It Encourages Overspending

BNPL makes it easy to lose track of your total holiday budget. A $150 jacket split into $37.50 payments doesn’t feel like much until you add in gifts, decorations and last-minute splurges. Before you know it, you’ve overspent and set yourself up for a New Year’s financial headache.

2. Late Fees and Interest Can Snowball

Miss a payment and those "interest-free" plans can quickly turn into a debt trap. Late fees vary but can range from $10 to $39 per missed payment. Some BNPL providers also tack on penalty interest rates, making your holiday deal feel anything but festive.

3. Refunds Are Complicated

Returning an item purchased through BNPL isn’t always easy. While you're waiting for a refund from the retailer, you may still need to make payments. It’s a logistical hassle during an already hectic season.

4. No Credit Benefits

Unlike credit cards, some BNPL options don’t help you build your credit score. However, missing payments can negatively affect your credit, as some BNPL services report delinquencies to credit bureaus.

The Holiday Spending Self-Check

Before clicking “Pay Later,” take a moment to ask yourself these questions:

  • Do I have enough room in my budget to handle multiple payments?
  • Have I reviewed the terms and conditions, including late fees and interest rates?
  • Can I afford this item without BNPL?

  • Am I juggling more than one BNPL plan already?

If you’re unsure about any of these, it might be time to rethink your purchase or explore safer alternatives.

Smarter Ways to Shop This Holiday Season

There’s no shortage of strategies to shop smarter and stretch your budget without relying on BNPL. Here’s how you can make the most of your money:

1. Create a Holiday Budget

Start with a clear plan. List everyone you need to shop for, set spending limits and stick to them. Don’t forget to factor in extras like wrapping paper and shipping costs. Hughes’ free MoneyCoach tool offers interactive budgeting modules to help you get started. Explore MoneyCoach here.

2. Use a Low-Rate Credit Card

Credit cards often provide better protections and rewards compared to BNPL. Hughes’ Visa Platinum Card offers low rates and no annual fees, making it a safe and reliable option for holiday shopping. Plus, responsible use can help you build your credit score.

3. Take Advantage of Hughes’ Holiday Loan

When unexpected holiday expenses pop up, Hughes’ Holiday Loan is here to help. With low fixed rates and manageable payments, this seasonal loan offers a smarter alternative to BNPL or high-interest credit cards. It’s designed to make your holidays brighter while keeping your finances stress-free. 

4. Save Before You Spend

Consider opening a dedicated holiday savings account. Deposit a little each week, starting in January, so you’re ready for next year’s shopping season. Hughes’ savings accounts are designed to help members meet their financial goals, whether big or small.

5. Support Local and Save

Stretch your dollar by shopping at local businesses that offer discounts through Hughes’ Checking PLUS program. From coffee shops to specialty stores, you’ll find great deals that keep your wallet and your community happy.

Making BNPL Work for You

Still considering BNPL? It’s not entirely off-limits—if you use it wisely. Here are some tips to keep in mind:

  • Limit the Number of Plans: Stick to one BNPL agreement at a time to avoid confusion.
  • Choose Smaller Purchases: Reserve BNPL for low-cost items that won’t overwhelm your budget.
  • Set Reminders: Schedule alerts for payment due dates to avoid late fees.

  • Review Terms Carefully: Understand exactly what you’re signing up for, including fees and repayment terms.

    Celebrate Smart, Spend Smarter

The holidays should be about creating memories, not stressing over finances. BNPL might offer a short-term solution, but its long-term risks are worth considering. By planning ahead, setting a budget and exploring Hughes’ financial tools, you can enjoy the season without sacrificing your financial well-being.

Ready to take charge of your holiday shopping? Visit HughesFCU.org to explore all the resources and tools available to help you stay financially strong this holiday season.