What Happens if You Fall Behind on a 'Buy Now, Pay Later' Plan?

It's not a great situation to land in.

For years on end, if you wanted to pay off a purchase over time, you generally needed to charge it on a credit card and carry your balance forward. But that would usually mean racking up interest on that sum.

Now, there's another way to finance purchases without subjecting yourself to interest charges from the get-go. It's called signing up for a "buy now, pay later" plan, or BNPL plan.

Research from The Ascent found that 50% of U.S. consumers have used a BNPL plan. And these plans tend to be more popular among younger consumers than older ones.

With a BNPL plan, you're given a limited window of time to repay a purchase in installments -- usually 12 weeks or less. If you stick to your repayment plan, you won't face interest charges, and you'll get the option to spread out payments on a purchase so you're not forced to empty out your bank account in one fell swoop.

But there's a big drawback to using BNPL plans. If you fall behind on your payments, the consequences could be quite unfavorable.

When you don't keep your end of the bargain

With a BNPL plan, you're generally required to make a down payment on your purchase, but you usually get to pay the bulk of it off over time. If you don't stick to that schedule, though, it will cost you in different ways.

First, in that situation, interest and penalties will apply. Now, the specifics there will depend on the terms of your BNPL plan agreement, so you'll need to read the fine print before signing up. But either way, you're looking at some sort of direct financial penalty.

You'll also face an indirect financial penalty in the form of credit score damage. If you fall behind on your BNPL plan payments, you'll be reported as delinquent to the credit bureaus, the same way that would happen if you were to fall behind on your credit card payments, or payments for a loan you've taken out.

Once that happens, your credit score could take a big hit. And that could cost you in the form of higher interest rates when you go to borrow money next.

In some cases, credit score damage from late BNPL plan payments could make it so you're not even able to qualify for a loan at all. So all told, falling behind on your payments is a pretty bad thing.

Should you sign up for a BNPL plan?

BNPL plans are generally best reserved for two scenarios:

1. You have an emergency purchase you can't put off, like a new fridge for your home because your current one has broken and can't be fixed
2. You have a lump sum of money coming your way within weeks, like a bonus from work, and you're certain you can pay off your purchase with it

Otherwise, it's generally best to steer clear of BNPL plans, because they might lead you to buy things you really can't afford. And even if you don't fall behind on your payments in that scenario, you might end up straining your budget and causing yourself unnecessary financial stress.