Holiday shopping season is upon us and, for personal finance reporters like ourselves, that means diving into all the different ways Americans are paying for gifts this year.
For a good chunk of shoppers, turns out they plan on paying later. As many as half of holiday shoppers intend to use buy now, pay later services at checkout, per a PayPal survey. While these short-term, often interest-free loans offer convenience and flexibility, financial experts generally don’t recommend them — except in this one instance.
The one time it’s OK to use BNPL
BNPL loans aren’t great because you can face late fees for missing a payment and unpaid debt can still get sent to collections, Bruce McClary, spokesperson at the National Foundation for Credit Counseling (NFCC) points out.
With more than four in 10 (41%) BNPL users paying late in the past year, a LendingTree survey found, this is an all too common risk. Yet, while risks remain, there’s actually an instance where a BNPL loan makes sense.
“I would say an acceptable scenario for using BNPL during holidays, or even throughout the year, is [when] you’re comfortable with the terms of the loan, [you] want to use it during a one-time situation, it fits into your budget and you can repay it at 0% interest and receive perks,” McClary says.
To help you check off these factors that go into the “perfect scenario,” consider the below tips from McClary:
Read over the BNPL terms since they aren’t universal; what one lender offers may not be what another offersEnsure the loan has zero interest, and under what circumstancesKnow any fees for late or missed paymentsCheck whether or not BNPL activity will be reported to the credit bureausMath out your repayments; BNPL full repayment is typically four to six weeksStick to a one-off situation, like purchasing a gaming console or a flat-screen TVSee if you can earn BNPL perks like cash back or rewards
Klarna and Affirm are two of the most well-known names in the BNPL space but, again, they each have their own terms that consumers should be comfortable with before signing on for a short-term loan. For instance, Klarna charges a late fee of up to $7 and interest rates can range from 0% to 35.99% APR. Affirm doesn’t charge late fees, but late payments of more than 30 days past due may be reported to the credit bureaus.
KlarnaCredit limit
Initial limit of $100; may be increased up to $2,500.
Loan terms
Four interest-free payments every two weeks or a one-time payment within thirty days
Monthly payment plan?
Yes, users can pay over 6 to 24 months.
Fees
Late fee of up to $7 (after 10 days)
Available merchants
Accepted at nearly 800,000 merchants, including Amazon, Best Buy, Walmart and Target. Through the Klarna card, you can buy from retailers not integrated with the company.
ProsNo late feesWidespread acceptanceMultiple payment optionsConsNo way to reschedule paymentsSome loans come with interest (Does not apply to Pay in 4 and Pay Later)AffirmInterest rateCredit limitLoan termFeesAvailable merchants
Accepted at more than 358,000 merchants, including Amazon, Expedia, eBay, Walmart and Target.
ProsNo late feesWidespread acceptanceConsReports information to credit bureausNo way to reschedule paymentsSome loans come with interest3 alternatives to BNPL0% APR credit card
BNPL presents a heightened risk of overuse since consumers can open multiple lines of BNPL loans at once and easily fall behind on making payments without the threat of interest accruing. In fact, nearly one in four (23%) BNPL users claim to have had three or more active BNPL loans at the same time, per LendingTree.
An alternative is a 0% APR card that gives you an introductory period of zero interest on all purchases for often a year or longer; you just have to make sure you have a plan to pay off your balance in full before the 0% APR period is up.
The no-annual-fee Wells Fargo Active Cash® Card offers an intro APR for 12 months on new purchases and qualifying balance transfers, plus cardholders earn an unlimited 2% cash rewards on their spending.
Good to Excellent670–850
18.74%, 24.74%, or 28.74% Variable APR
Earn a $200 cash rewards bonus
Our expert take
The Wells Fargo Active Cash® Card is great if you want simplicity thanks to its flat-rate 2% unlimited cash rewards on purchases and $0 annual fee.
Pros & consHigh flat-rate return on purchasesIntro-APR for purchases and qualifying balance transfers for a yearNo annual feeCell phone protectionHas a foreign transaction feeLimited redemption options unless you pair it with a Wells Fargo card that allows point transfersMore detailsHighlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select’s editorial staff.
Apply Now to take advantage of this offer and learn more about product features, terms and conditions.Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months. Earn unlimited 2% cash rewards on purchases. 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 18.74%, 24.74%, or 28.74% variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5. $0 annual fee. No categories to track or remember and cash rewards don’t expire as long as your account remains open. Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge. Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible. Balance Transfer Fee
3% intro for 120 days from account opening, then up to 5%, min: $5
Another no-annual-fee card, the Chase Freedom Unlimited® (see rates and fees) has an into APR for a little over a year, 15 months, on new purchases. Cardholders earn 5% cash back on travel purchased through Chase TravelSM, 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service and 1.5% on all other purchases.
New cardholders receive a 0% intro APR for 15 months from account opening on purchases and balance transfers.
Good to Excellent670–850
Our expert take
The Chase Freedom Unlimited® is a no-annual-fee card that earns generous cash-back on everyday purchases and a lucrative welcome bonus.
Pros & consValuable welcome bonus and high rewards ratesLong intro APR for purchases and balance transfersNo annual feeHas a foreign transaction feeFew rewarding ongoing benefitsMore detailsHighlightsIntro Offer: Earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account openingEnjoy 5% cash back on travel purchased through Chase TravelSM, our premier rewards program that lets you redeem rewards for cash back, travel, gift cards and more; 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service, and 1.5% on all other purchases.No minimum to redeem for cash back. You can choose to receive a statement credit or direct deposit into most U.S. checking and savings accounts. Cash Back rewards do not expire as long as your account is open!Enjoy 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 18.74% – 28.24%.No annual fee – You won’t have to pay an annual fee for all the great features that come with your Freedom Unlimited® cardKeep tabs on your credit health, Chase Credit Journey helps you monitor your credit with free access to your latest score, alerts, and more.Member FDICBalance transfer fee
Intro fee of either $5 or 3% of the amount of each transfer, whichever is greater, in the first 60 days. After that, either $5 or 5% of the amount of each transfer, whichever is greater.
3%Â of each transaction in U.S. dollars
Personal loan
If you’re making a much larger purchase and need more money to cover the cost, you could consider a personal loan. Some lenders, like PenFed, let you borrow as little as $600; you can typically borrow as much as $100,000 with other lenders. Repayment terms can range from two to seven years, depending on the lender, and personal loan interest rates are usually lower than credit card interest rates.
PenFed Personal LoansAnnual Percentage Rate (APR)Loan purpose
Debt consolidation, home improvement, medical expenses, auto financing and more
Loan amountsTermsCredit neededOrigination feeEarly payoff penaltyLate feeProsCredit union membership available to anyoneLoans as low as $600Can pick up a physical at a branchMay apply with a co-borrowerConsFunds come as a physical checkMust be a member to get funds (no membership needed to apply)Must pay for expedited shipping to get your funds next dayMaximum loan amount of $50,000Late fee of $29
Bad credit? You can still get funding for major expenses.
Offers in this section are from affiliate partners and selected based on a combination of engagement, product relevance, compensation, and consistent availability.
Annual Percentage Rate (APR)
Savings
While it may be a little too late to create a sinking fund specifically for holiday shopping this year, remember this tip for next year. Socking away small amounts of money throughout the year will make holiday spending much less financially overwhelming since you’ve already created a pile of dedicated savings to it.
This way, you don’t have to apply for new lines of credit at all. Or, at the very least, the savings can offset the amount of credit you’d need to power through your holiday shopping list.
While BNPL loans can make payments more manageable without charging interest, they shouldn’t become your default way of making purchases. It can be tempting to take out multiple BNPL loans at the same time, and some people may even think of BNPL as an extension of their income.
Don’t use BNPL if you aren’t sure you can make all of the payments on time. BNPL loans are short-term loans and usually need to be repaid fully within four to six weeks.
It’s also generally recommended to not use BNPL on impulse purchases.
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At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every BNPL article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of loan products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.