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Here’s Why You Shouldn’t Use Buy Now Pay Later With Bad Credit

It can be hard to get financing with bad credit, which can make buy now pay later an enticing offer.

Justin Cupler

Contributing Writer at Tally

October 25, 2022

Financing may seem useful when you want to buy an item and lack the cash to do so. Today, you have more options than ever for financing these purchases, including a relatively new option known as buy now pay later (BNPL) from companies like Affirm, Afterpay, Klarna, Splitit and others.

The BNPL financing option can work for anyone, but it’s designed for those with bad credit, as it generally requires only a soft credit check and has relatively easy-going eligibility requirements. But is buy now pay later with bad credit the right option for you?

Generally, the answer to that question is no, even though most don’t charge interest or fees. We explain why below.

How BNPL works

Buy now pay later credit lines are short-term loans from companies like Sezzle, Klarna, Afterpay and PayPal. These allow you to purchase an item and then make a series of equal biweekly interest-free payments after an initial down payment, which is typically 25% of the total purchase price.

In return for paying off the purchase so quickly, these companies typically offer 0% interest rates and no fees.

BNPL lenders are popular among consumers with poor credit who can’t qualify for standard financing, such as a credit card or personal loan. This is because BNPL lenders perform only a soft credit check for approval and to set your spending limit. Plus, they generally have lower creditworthiness standards than traditional lenders.

You’ll typically find the buy now pay later option at an online retailer’s checkout screen. Clicking this option will take you to the BNPL provider’s website to apply for their services. After getting approved, you’ll review the loan terms and return to the retailer’s site, where you’ll make the down payment with a credit card or debit card.

After completing the down payment, the retailer will ship the item as if you paid for it in full. Then, you will make your installment payments to the BNPL provider.

5 reasons not to use buy now pay later with bad credit

The thought of making a purchase now and paying it off over a few weeks is tempting. However, that BNPL account can lead you down a bad financial path. Here are five reasons to not use buy now pay later with bad credit.

1. You’re leveraging future income

When you use a BNPL option to purchase an item, it’s easy to forget that you have to pay this off over a short time. For the next six weeks or so, a portion of your income will go toward paying off the loan.

If you run a tight budget, the upfront down payment may not hurt you, but the ongoing payments could make your already-tight budget unmanageable. Plus, if you don’t earn a consistent income, you may be spending money that isn’t guaranteed. This could make it difficult for you to pay other bills, which could potentially damage your credit further.

2. You can’t predict a financial emergency

While you can try to account for potential financial emergencies, it’s virtually impossible to predict them. You never know when your car may break down or layoffs will leave you temporarily unemployed. If you took out a BNPL loan to purchase a big-ticket item and a financial emergency strikes, your finances might be stretched too thin to manage.

And with bad credit, it may be hard for you to get approved for other backup options, such as a credit card or a home equity loan, to help you through the emergency. 


3. It supports impulse buying

A big part of financial literacy and repairing your bad credit is learning to control impulse buying, which can cause unnecessary stress to your budget. Financial experts often recommend saving money for a big purchase instead of pulling out a credit card for multiple reasons:

  1. Saving gives you time to reconsider the purchase and decide if it’s something you really want or need.

  2. If a financial emergency strikes while saving for the item, you can use that savings to handle the emergency instead.

  3. You avoid going into debt and paying interest charges and other fees.

Using a BNPL service to finance a purchase is not much different than pulling out your credit card to make the same purchase. Sure, most BNPL providers offer a 0% interest rate and no fees as long as you adhere to the repayment terms, but you’re still locking yourself into future payments.

4. You won’t build your credit score

While credit cards have some perks, such as rewards points, cash back and helping you build your credit score, most BNPL credit lines do not. 

In general, BNPL providers do not report your installment payments to the three major credit bureaus — Experian, Equifax and TransUnion — so those on-time payments won’t help build a good payment history or boost your bad credit score.

However, if you default on the BNPL loan, the lender will likely report it to the credit bureaus, potentially harming your credit history.

5. Interest charges and other fees may apply

Yes, buy now pay later apps preach no fees or interest, but that’s not completely accurate. If you have late payments, many buy now pay later services will start charging fees, interest or both. For example, Klarna will charge up to a $7 late fee if you’re over 10 days late with a payment.

When you’ve already struggled to manage your finances, leading to a bad credit score, these late fees can add unnecessary stress. 

Save your cash instead of using a BNPL credit line

If you want to make a purchase and your bad credit has you thinking about a BNPL account to finance it, stop and consider the reasons you shouldn’t. Instead of remembering to make payments to a creditor every two weeks, you can save the cash every two weeks and pay for the item in full.

This helps you in a few ways. First, you avoid having to remember to make biweekly payments and leveraging future income for an impulse purchase. Second, this gives you six weeks to think about the purchase, allowing you to decide against it if it’s not something you need. Finally, if you do change your mind before making the purchase, you now have savings you can put toward an emergency fund or a rainy day fund.

If you save the cash for the purchase, you can choose to pay with a rewards credit card, like a rewards Visa or Mastercard. Instead of paying the credit card bill in monthly installments, pay it in full when you get the credit card statement. This allows you to reap the rewards points and still avoid interest charges by paying it off within the grace period.

Skip the BNPL and avoid potential pitfalls

Sure, that buy now pay later with bad credit may seem like a great way to finance a large purchase and spread the cost out over a few weeks with no interest. However, that no-interest, no-fee short-term loan can cause you financial harm if you’re unable to make the payments.

Is credit card debt preventing you from paying cash for larger purchases? The Tally† credit card debt repayment app can help. Our app helps you manage your credit card payments, and Tally offers a lower-interest personal line of credit, allowing you to efficiently pay off higher-interest credit cards. 

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.