It seems like everyone is in the mood to shop for the holidays.  Even with COVID-related supply chain logjams, American consumers are expected to “shatter previous records” and spend between $843 and $859 billion on holiday purchases in November and December, according to the National Retail Federation.

Listen to audio highlights of the story below:

Buy now, pay later (BNPL) is offered as a convenient way to pay for gift purchases. More than 40,000 U.S. retailers, from Amazon to Walmart, now offer BNPL. Target has partnered with both Affirm and Sezzle, two of the largest installment payment platforms. In a blog post, Target said it did this to provide “easy and affordable payment options” that work within a family’s budget.

With all the buzz about this relatively new payment option, BNPL usage is expected to double this holiday season, going from 1.3 percent of all purchases in 2020 to three percent this year, according to, an industry publication.

BNPL services market themselves as the consumer-friendly alternative to credit cards, offering convenience, flexibility, and transparency. Sezzle bills itself as the “stress-free solution to financial freedom,” while Affirm promises “no hidden fees.” Afterpay says it “empowers customers to access the things they want and need, while still allowing them to maintain financial wellness and control.”

“Buy-now-pay-later products, if affordable and truly free to the consumer, may help consumers manage larger purchases without the longer-term debt and high costs of credit cards,” Lauren Saunders, associate director of the National Consumer Law Center, said in congressional testimony this week. “But some BNPL products may have deceptive and abusive profit models built on the expectation of late fees from struggling consumers.”

How It Works

The basic BNPL model for retail purchases is simple: Buy what you want, and pay back the loan in equal installments, often with no interest. The typical set-up is four payments over a four-to-six-week period, with the first payment due at the time of purchase.

Not all BNPL offers are the same; check the terms and conditions before using a particular service. For example, with Affirm, you can choose to make 12 payments over the course of 12 months. Affirm also charges interest, in some cases, that varies from 10 to 30 percent.

Most BNPL loans have late fees, which in some cases, may be reported to the credit bureaus and damage your credit history. It’s important to find out how that company handles late payments before you sign up.

An alarming more than seven in 10 shoppers who used BNPL were charged interest or late payment fees, according to a recent survey by Lending Tree. Nearly a third of BNPL shoppers didn’t know what the interest rate and fees would be before agreeing to finance their purchase.

Consumer Reports adds this caution: If you sign up for automatic repayment through your debit card or bank account—as many people do—and you don’t have enough money to cover that payment, you could get hit with an overdraft fee.

You can apply for a BNPL installment plan at checkout (online or in the store) and get instant approval. Or sign up with one of a growing number of BNPL services and start shopping on its website. There are also apps that make it easy to pay this way when you’re at the store.

There may be an eligibility check to get approval for the loan, but BNPL services don’t pull your credit score (what’s called a “hard inquiry”), something that’s required when you apply for a credit card. This makes BNPL an attractive option for those who don’t qualify for a credit card.

“There really aren’t the same checks and balances there are when you apply for a credit card and have your creditworthiness rated prior to approval,” said Doug Bowman, a marketing professor at Emory University’s Goizueta Business School. “This instant credit on demand is a shift from a practice of responsible lending to reliance on the consumer for responsible spending.”

Put another way: Just because you qualify for buy now, pay later, doesn’t mean you should use it.

“There are already so many ways that people are tempted to overspend during the holidays and buy now, pay later offers don’t help matters, especially for people who find themselves overspending and going over budget,” said Bruce McClary, a vice president at the National Foundation for Credit Counseling.

Some of last year’s holiday shoppers, 29 percent of those who put those purchases on a credit card, still haven’t paid off their balances, according to the NerdWallet 2021 Holiday Shopping Report.

Maybe It’s Too Easy

BNPL lenders make most of their money from fees paid by retailers for each transaction they fund. In some cases, these fees are higher than what the merchant would pay for a credit card transaction. Even so, it’s a smart move for retailers, because BNPL financing boosts sales.

It’s human nature to “over-discount” the total cost of a purchase when it’s broken down into smaller payments, Bowman explained. “So, paying $100 now and making three more payments of $100, feels cheaper than if the $400 is coming out of my wallet right now.”

While financial experts typically talk about getting into financial trouble when charging purchases on a credit card, it’s also easy to bust your budget using BNPL, they warn.

Two in three shoppers surveyed by Lending Tree who used BNPL financing said it caused them to spend more than they would have otherwise, and nearly half said they wouldn’t have made the full purchase if BNPL financing wasn’t available.

“For people who are already having problems paying their bills on time, buy now, pay later programs are the keys to a car without brakes on the highway to insolvency,” McClary told Checkbook. “These are loans that have to be paid back just like any other, and some of them have interest that adds to the cost of the purchase.”

In some cases, using a credit card may be a better option than BNPL, especially if you pay the credit card balance in full each month.

“As long as you’re avoiding interest, credit cards can be a better choice because they offer lucrative cash back and travel rewards programs,” said Ted Rossman, senior industry analyst with “Many credit cards also offer other benefits, such as extended warranty coverage and purchase protection.”

Other Downsides of BNPL

Unlike credit card companies, which report to the credit bureaus, most BNPL companies do not. Staying current in your credit card payments will help you build a positive credit history. Making your BNPL installments on time, in most cases, will not be reported to the credit bureaus and will not help your credit scores.

Like other bank products, credit cards are highly regulated by the federal government and have well-defined dispute resolution processes; BNPL financing is not regulated, and offers few consumer protections against faulty goods or bad service.

If you buy something worth more than $50 with a credit card, and it does not arrive, or the quality is unsatisfactory—and you’ve tried to resolve the issue with the seller—you can dispute the charge with the credit card company. The charge will be frozen on your statement until the credit card company can investigate. In most cases, if it’s a valid complaint, the charge will be removed.

Read More: Why It’s Safer to Use a Credit Card, Not a Debit Card

BNPL loans lack the consumer protections that apply to credit cards. As the Consumer Financial Protection Bureau recently cautioned in a blogpost:

“BNPL companies don’t offer the same dispute protections as credit cards if the item you purchase is faulty or a scam. Returning merchandise bought with BNPL can sometimes be complicated. The BNPL company may hold you responsible for the total cost of a purchase even after you’ve returned the product, so be sure to read and understand the merchant’s specific return policies.”

Consumer advocates are calling on Congress to provide basic consumer protections for consumers who use BNPL financing, something these fintech lenders insist is unnecessary.

In her congressional testimony, NCLC’s Saunders urged lawmakers to regulate credit offered at the point of sale, so that BNPL financing has “the same chargeback, reasonable and proportional penalty fees, ability-to-repay, and statement requirements that apply to credit cards.”

Having Problems Paying Your Bills?

You can find a non-profit credit counselor in your area by visiting the National Foundation for Credit Counseling (NFCC) website. Counselors can also help with mortgage problems and student loan debt. The initial consultation is free and the monthly fee, if you choose a debt management plan, is typically $25-$50 based on your ability to pay. (In some states, these fees are not allowed.)

Related: Buy Now, Pay Later Spending Traps


Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for KOMO radio in Seattle. You can also find him on Facebook, Twitter, and at