51% of Consumers Use 'Buy Now, Pay Later' Plans to Cover Purchases They Can't Afford. Here's Why That's a Problem

This practice could be a recipe for disaster.

Back in the day, it was common to buy things like furniture or electronics on layaway. But growing access to credit cards made that less necessary. That's because consumers with credit cards can simply charge purchases on those cards and pay them off over time.

The problem, of course, is that carrying a credit card balance forward means racking up interest on it (assuming we're not talking about a 0% interest rate card). And that could get costly. Plus, carrying too much credit card debt could cause credit score damage.

These days, there's an alternative payment solution that many consumers are turning to in place of credit cards -- buy now, pay later plans (BNPL plans). BNPL plans let you make a down payment on a purchase and pay the rest of it off in installments, usually within a three-month period. But while these plans have their benefits, they could also open the door to a host of unfavorable financial consequences.

Use BNPL plans with caution

In November, Forbes Advisor and OnePoll conducted a survey of 1,000 American consumers who have used BNPL plans at least once. Among respondents, the top reason for using BNPL plans was to reduce the financial impact of a large purchase. But 51% of those surveyed said they use BNPL plans to purchase items they can't afford right away. And that's more of a problem.

It's one thing to use a BNPL plan to cover an emergency purchase -- for example, a new fridge if yours breaks. That's the sort of thing you can't go without for months, so financing it in some shape or form makes sense. But it's another thing to use a BNPL plan to cover a nonessential purchase you can't afford. And if you're going to make a habit of using BNPL plans, it's a good idea to note that distinction, because falling behind on BNPL plans could cause serious financial damage.

The consequences of not keeping up with BNPL plans

When you charge expenses on a credit card and don't make your minimum payments on time, you're not only assessed fees, but that activity is reported to the credit bureaus. And your credit score could take a serious hit after just one late payment.

The same holds true for BNPL plans. If you keep up with your payments under one of these agreements, you won't be charged interest, you won't have to deal with fees, and you won't face credit score damage. But if you do fall behind, the opposite could happen -- you might end up on the hook for a host of extra charges, and your credit score might plunge, since late BNPL plan payments are reported to the credit bureaus just like late credit card payments.

That's why using BNPL plans for purchases you can't afford isn't the best practice. Again, if you're in a jam and have to make a purchase you can't put off, using a BNPL plan may be a reasonable approach. But for purchases that aren't essential, you're better off saving up first so you can pay for those items in full.

Along these lines, if you need to charge an emergency purchase you know you can't pay for right away, you may want to consider using a credit card over a BNPL plan. While you might rack up more interest from the start with a credit card, you'll generally get more time to pay your purchase off, since BNPL plans often limit you to 12 weeks or less. And when you're talking about a large purchase like a household appliance, you might really need that added flexibility.