The Ugly Truth About the Newest Online Trick to Trap You in Debt

By Nichole Singleton and Lindsay Irvin on Thursday, March 31, 2022

If you’ve opened a shopping cart online or made an online purchase recently, you’ve likely seen the option to split your total into four interest-free payments instead of the traditional pay-in-full route. This service, known as buy now, pay later (BNPL), is growing more and more popular among shoppers as thousands of online retailers add it to their payment options.

As convenient as this may seem, the service appears to pose more problems than perks.

The BNPL model is designed to encourage impulse purchases because it makes a $100 purchase seem more affordable by presenting four $25 payments over six weeks. What is not mentioned is that this is essentially a loan that can quickly damage your credit if you are unaware of the terms and conditions you are agreeing to.

Perks & Pitfalls

Just about the only perk to buy now, pay later is not having to wait for the item you want. Perhaps one more, if you’re responsible with using credit as a method of payment, is that BNPL plans usually don't charge interest like your credit card does, and it’s easier to get approved than traditional credit cards or lines of credit.

As for the pitfalls, well, there are plenty.

1. You are no longer buying from the online retailer.

BNPL companies are third-party services. This means when you choose to split the total into payments, you are no longer buying from the retailer; you're dealing directly with the BNPL company.

2. You are agreeing to a loan.

BNPL companies are paying for your items in full to the retailer and offering you scheduled payments. This is essentially a loan to the BNPL company because you now owe them, not the retailer, payments for the item.

3. It can hurt your credit, but it can’t help it.

Making purchases with traditional credit card and making payments on time helps build credit. And while BNPL is another form of borrowing/credit, you can’t build your credit using this method at checkout. That's beacause these companies claim they don't report to credit bureaus, so there's no way to track your on-time payments. However, they will report you to credit bureaus and collections agencies if you miss payments—which will negatively impact your credit score.

4. You are responsible for remembering to pay.

As a high school student, you may not have many, or any, monthly payments you are responsible for, and by choosing to buy through a BNPL service, you are now adding a payment schedule you have agreed to keep up with.

“With multiple BNPL companies each having their own terms and conditions, this can quickly become overwhelming and difficult to manage if you’ve purchased from more than one [online retailer],” says Kirby Jett, vice president of business development for Signature Bank of Arkansas.

5. There are fees and strict penalties.

BNPL companies promote no interest, no fees and no surprises, but this is only true if you make your payments on time. You also don’t control when your payments are scheduled because they provide you with the set payment due dates. Miss any of their terms and fees will be assessed.

“They make it seem like they aren’t going to report to the bureaus, but if you are late or just refuse to pay, they will send you to collections,” Jett says, “and collections will report. So be mindful.”


“The best way [to avoid BNPL pitfalls] is to save then spend. Come up with a budget before hitting confirm on the purchase. Instead of buying first then budgeting out for six weeks, wait and budget that amount for six weeks and buy the item outright in one transaction. [This way], you don’t have the opportunity for sneaky fine print ... [and] you won’t be charged any interest or fees—potentially paying more than the item was originally worth.”

Kirby Jett
Vice President of Business Development
Signature Bank of Arkansas


Pro Tips

• Spend within your means.
• If you can’t afford an item or product in full, don’t purchase.
• Save and create a budget before you buy.
• Be observant throughout the checkout process when online shopping.

Common Companies

• Klarna
• Afterpay
• Pay in 4 by PayPal
• Affirm
• Sezzle
• Zip
• PlanIt by American Express