Buy Now, Pay Later Loans and Your Credit

Key Takeaways:

• BNPL loans are used for a one-time transaction and provided at the time of check-out.
• Currently, BNPL loans on your TransUnion credit report can be seen by you, but this data can’t be used by authorized companies that may access your report.
• At this time, BNPL loan data on your TransUnion credit report does not impact credit score calculations using TransUnion information.
• Be sure to fully understand your payment terms and options before taking out a BNPL loan so you’re confident you can pay it back on time.

In this article:

What are BNPL loans?
How your credit is impacted by BNPL loans
BNPL loan tips

You may have seen a “Buy Now, Pay Later” (BNPL) option at checkout at your favorite store. BNPL loans are a type of point-of-sale (POS) installment loan and have become a popular way to pay. BNPL loans can be appealing because a large purchase doesn’t have to be paid in full upfront. In the Q2 2024 TransUnion Consumer Pulse, of consumers who plan to apply for credit in the next year, more than a fifth (21%) say they’ll use Buy Now, Pay Later services to spread payments out over time.

Whether you’ve taken out a BNPL loan before or are considering trying one for the first time, it’s a good idea to understand how they work. Here’s a description of what BNPL loans are and tips to manage them responsibly:

What are BNPL loans?

BNPL loans are loans provided at checkout for retail transactions for the purpose of financing a one-time, unsecured transaction. They allow you to finance a purchase with multiple, equal payments instead of one lump sum.  

How your credit is impacted by BNPL loans

At this time, BNPL loan information provided to TransUnion is visible to you, but credit scoring providers, lenders, insurers or other authorized companies that may access your credit report will not be able to use the data. Because of this, currently, BNPL loan data will not impact credit scores calculated using information from your TransUnion credit report.

In the future, the data will become available to lenders. At that time, lenders may use your BNPL loan information, along with other data in your credit report, to assess your creditworthiness. Some credit scoring models may begin to incorporate BNPL loan data from your TransUnion credit report. This would mean that your BNPL account activity, like your payment history, could have an impact on your credit score. 

Not all BNPL companies report their data to credit reporting agencies. If you have a BNPL loan, you can contact them to see if they plan to report. 

BNPL loan tips

If there’s a product you want but find it would be easier financially to spread the payments out, BNPL loans can be an attractive way to pay. But before you buy, it’s a good idea to learn more about how these products work.

Here are some things to keep in mind before using a BNPL loan:

Understand payment options and terms

You may be offered multiple BNPL loan options and terms for your purchase. Several lenders feature the ability to split your cost into four payments due every two weeks. If you make all the payments on time and in full, you may not pay any fees or interest. Some companies also offer longer-term loans, which can range from 3 – 36 months. Depending on the service you use, these loans may include interest charges in addition to the purchase price.

If you have multiple BNPL loans, make sure you’re aware of the loan terms and when payments are due so you can budget appropriately. You want to be sure you have enough available funds in your linked bank accounts so you can avoid any potential late fees from the BNPL companies and overdraft fees from your bank.

Check for any fees or penalties

Before making your purchase, you’ll want to understand if there are any other fees, like late payment fees you may run into.You’ll also want to see if there are penalties for missing a payment or failing to pay completely. Some BNPL loan lenders may send the unpaid debt to collections. Collections can have a significant impact on your credit health.

Keep your budget in mind

If you decide to use a BNPL loan to finance your next purchase, it’s worth taking a few moments to fully understand the terms and conditions, as discussed above. Of course, it’s always important to be mindful of your budget and long-term financial goals. Breaking a lump sum into frequent, smaller payments may make certain purchases seem more affordable. Just be careful to avoid the trap of overspending. When used responsibly, these loans can be another tool to help you achieve your financial goals.