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Know before you buy (now, pay later) this holiday season

Holiday shopping season is here. There are gifts to buy, deals to find, and more ways to pay than ever before. If you’ve done any online shopping recently, many retailers are offering payment options that allow you to stretch out your purchase over four or fewer payments or installments, which is known as a Buy Now, Pay Later (BNPL) loan.

BNPL loans have become much more popular over the past few years. These offers can be appealing, especially when they require little or no immediate payment. It’s important to know that some BNPL loans may not have the same consumer protections as other forms of credit, and in many cases, you may be tempted to spend more than if you were using other ways to pay.

We have resources to help you understand BNPL loans, but here are some of the most common risks to be aware of before using a BNPL loan for your next purchase.

BNPL products often carry fees

While many BNPL loans don’t charge interest, most do charge late fees if you don’t make your payments on time. Each BNPL lender has different fees and policies, so it’s important to carefully review the loan’s terms and conditions to understand these fees and what you can do to avoid them.

Learn more about BNPL loan fees

Learn more about what happens if you can’t pay back your BNPL loan

Returning merchandise bought with BNPL loans can be complicated

Even if you return the item, you may need to continue paying back your BNPL loan. Your loan repayment agreement is with the BNPL lender rather than the retailer. While you may be able to return the merchandise – and you may eventually receive a credit – your loan repayment agreement may require you to continue to make payments until your return or dispute is resolved.

Learn more about returning merchandise bought with a BNPL loan

BNPL loans have fewer protections than credit cards

If you normally make purchases with a credit card, you may be familiar with how to dispute a scam or what to do if your order never arrives or is defective. However, BNPL loans are not subject to some of the consumer protections applicable to credit cards. For example, BNPL loans don’t offer the same dispute protections as credit cards if the item you purchase is faulty or a scam.

Understand a BNPL loan’s impact on your credit scores

Most BNPL lenders don’t report payments to the major credit reporting companies. They also don’t generally perform hard credit inquiries when deciding whether or not to give you the loan. In other words, your credit scores won’t be helped or hurt by getting a BNPL loan or by whether or not you make your payments on time.

However, if you don’t repay your BNPL loan and it’s turned over to a debt collector, it could be reported to a credit reporting company, which can hurt your credit scores.

Learn more about BNPL loans and credit scores

Know before you buy

The holiday shopping season may soon be over, but BNPL loans aren’t going away as a payment option. Remember that it can be tempting to purchase something today and pay for it later, but you should have a good sense of your finances and budget before using a BNPL loan. If you need help creating a budget, check out the CFPB’s resources.

If you decide to use a BNPL loan, make sure you:

  • Understand the risks
  • Read the loan terms
  • Consider signing up for automatic repayment options to avoid late fees but ensure that you have enough money in your account when the payments are due

If you're having an issue with a consumer financial product or service, you can submit a complaint with the CFPB online or by calling (855) 411-CFPB (2372).

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