One of Amazon’s biggest sales of the year is set for next week, Oct. 8 and 9. As you’re checking out your Prime Day deals, one payment option you’ll want to reconsider is “buy now, pay later” financing. While these plans can allow you to pay for purchases in installments without interest, they come with significant risks and downsides that make them unsuitable for Prime Day splurges. Nearly 20% of consumers using BNPL have missed payments, and 30% have overspent, according to a Bankrate survey. Let’s take a look at the hidden costs of “buy now, pay later,” and why you’re better off paying upfront for all your Prime Day deals.
High late fees
The biggest danger with buy now, pay later is missing one of the recurring payments. If you fail to make an installment on time, you’ll typically be hit with a late fee of $7 or more from the lender. And those fees can really add up quickly if you miss multiple payments. Suddenly that discounted Prime Day deal doesn’t look so affordable after expensive late fees get tacked on.
Unexpected interest charges
Buy now, pay later plans are marketed as interest-free financing. However, in many cases, that 0% interest offer only applies if you pay off the full balance by a specific due date. If you have even $1 remaining after that cutoff, interest starts accruing at rates that can exceed 25% in some cases. So buyer beware—it’s easy to inadvertently end up with interest charges if you’re not vigilant about paying off the balance before the promotional period ends.
Impact on credit scores
Even though buy now, pay later isn’t a traditional credit card or loan, the lenders do report payment activity to the credit bureaus. So if you miss payments or default on the installment plan, it can cause damage to your credit score that makes it harder to get approved for mortgages, auto loans, credit cards, and other financing down the road. Using buy now, pay later irresponsibly can easily offset any of your upfront Prime Day savings.
Limited purchase protections
When you use a credit card, you get valuable purchase protections like extended warranty coverage, price protection, and the ability to dispute fraudulent charges. Buy now, pay later plans generally don’t come with these safeguards. This means you’re on the hook if something goes wrong with the Prime Day purchase or the retailer doesn’t make things right. The smarter move is to only buy what you can afford during Amazon’s Prime Day event, no matter how tempting those deals may seem.
Although buy now, pay later plans are helpful if you really need to finance something big, it’s best to avoid taking on debt for everyday expenses. Keep checking back for more Lifehacker coverage of Prime Day to get the best deals available this fall.
