'Buy Now, Pay Later' Purchases Reached an All-Time High on Cyber Monday. But Here's Why They're Bad News

If you like to tackle holiday shopping with time to spare, then you may have purchased some gifts on Cyber Monday. And chances are, at some point, you were offered the option to pay for your purchases over time via a "buy now, pay later" plan, or BNPL plan.

If you used a BNPL plan on Cyber Monday, you weren't alone. BNPL plan purchases for Cyber Monday reached an all-time high this year, says Adobe Analytics, rising 43% from a year prior. But while you might think of BNPL plans as a convenient way to finance your purchases, these plans can backfire.

The major problem with BNPL plans

With a BNPL plan, you typically make a down payment on a purchase and then finance the rest over a brief period -- often 12 weeks or less. BNPL plans can seem like a more affordable means of paying over time than credit cards, since with the latter, you're charged interest any time you don't pay off a balance in full. With a BNPL plan, you can avoid interest charges if you stick to the terms of your installment plan and make all payments on time.

But there's a big downside to BNPL plans. If you fail to make payments, suddenly, you are looking at interest and fees. And those could be substantial. 

Another problem with falling behind on a BNPL plan? Just as being delinquent on a credit card payment could cause major damage to your credit score, so too could not making a BNPL plan payment have the same impact. Once your credit score takes a hit, it can be difficult to qualify for a loan or even rent a home. 

Just say no to BNPL -- unless you really have no choice

Despite the convenience factor, your best bet is generally to steer clear of BNPL plans -- in the context of holiday shopping and in general. A good rule of thumb when it comes to any purchase is that if you don't have the money on hand to pay for it, you should just pass. The only exception is if you're talking about a true emergency purchase. 

If an essential home appliance breaks on you, for example, and you have to finance the purchase of a new one, then in that situation, it may be reasonable to turn to a BNPL plan. But if you're not sure you'll be able to keep up with your payments, then a credit card might be your better financing bet.

With a credit card, you might rack up some interest if you have to carry your balance forward. But if you make your minimum payments on time, you won't be considered delinquent and your credit score won't take a hit.

So let's say you need to purchase a $1,000 kitchen appliance in a pinch. Perhaps you can afford to put $250 down, but you need to finance the remaining $750. 

A BNPL plan might only give you three months to come up with that $750 in installments. But you might realistically need more like six months to accumulate that money. While racking up interest on that $750 by charging the appliance on a credit card isn't great, it could prevent your credit score from taking a major hit.

Also remember that in some cases, you might qualify for a credit card with a 0% introductory APR. In a situation like this, that might be a far better bet than a BNPL plan. 

While those 0% introductory periods don't last forever, they commonly stay in place for a year or longer. So that buys you some time to pay off an emergency purchase without financial or credit score damage.