Similar to taking out a loan, buy now, pay later, also known as BNPL, allows you to split up the cost of an item into smaller, more manageable payments over time. BNPL has exploded in popularity due to its expansion into essential purchases like groceries, integration into major retailers and rapid adoption among younger generations. However, now that BNPL data will be factored into FICO scores starting in the fall of 2025, it's important to evaluate how you use the program, if it‘s right for you or if there are other alternatives that can help you meet your goals.
Read more: How to use Ally Bank’s buckets to manage your expenses
What is buy now, pay later?
Instead of making a payment at checkout, BNPL services allow you to purchase something immediately and pay it off in several installments over a set period of time. To do this, you create an account with the BNPL provider and give them information like your name and Social Security number. Then, they typically perform a soft credit inquiry. Once approved, you can finish checking out.
Be sure to read the fine print of your BNPL purchase, as often the remaining payments are made for specific dates with an autopay feature. Note when your next payments hit your account to make sure, you're prepared.
Pros and cons of buy now, pay later
While buying now and paying later can sound enticing, it’s important to evaluate all factors.
Pros | Cons |
|---|---|
Can receive the good or service immediately | Late fees may be charged for missed payments |
High credit score not necessary to qualify | Missed payments could hurt your credit score |
Some BNPL companies do not charge interest | Payments may continue even if the item is returned |
Fast approval | Could encourage impulse spending |
Ability to break payments into smaller amounts | Can’t always benefit from card rewards programs |
0% financing | More difficulty returning items |
Impact of buy now, pay later on your credit score
Starting in fall 2025, FICO will start factoring in BNPL loan data into consumer credit scores. If you’re trying to establish or rebuild credit, consistent, timely payments to your BNPL provider could help demonstrate responsible behavior. However, failing to pay back BNPL loans on time could negatively impact your credit score if missed or late payments reported to credit bureaus by your BNPL service provider.
Tips for responsible buy now, pay later use
Buy now, pay later can be an effective way to make purchases more affordable. But like most financial services, it’s important to understand how to use it responsibly:
Pause before purchasing: BNPL can make it easy to impulsively spend. Before checking out, take a moment to assess whether the purchase aligns with your values and financial goals.
Learn how to spot common scams: Entering your name, address and Social Security number into an online platform comes with risk, so be sure to check that you’re using a trusted platform.
Set up autopay for your BNPL purchase: You should treat BNPL payments as seriously as your other financial obligations. Make sure you don’t miss any payments by using reminders or setting up autopay.
Track your credit utilization: As BNPL accounts start to be included in credit reports, take them into account when assessing your overall credit utilization ratio.
Use BNPL as part of your larger financial plan: If you have a limited credit history or lower credit score, responsible use of BNPL can be a strategic way to improve your overall financial situation.
Alternatives to buy now, pay later
If BNPL isn't available for the item you want to buy or if you’re interested in other alternatives, consider these options.
Set up buckets with Ally Bank Spending or Savings Accounts
Set up spending or savings buckets with Ally Bank's Spending or Savings Accounts, which allow you to allocate funds for specific expenses or savings goals.
For example, if you have a big event, purchase or splurge coming up, set up a bucket for your specific goal (think concert ticket, limited-edition merch release or anything you’d use BNPL for), create a spending plan and use Ally Bank’s savings buckets to set aside money each pay period. Once you hit your bucket goal, you’ll have the funds to pay for your purchase outright.
Utilize a 0% interest credit card
Depending on your credit score, you could qualify for a 0% annual percentage rate (APR) credit card, which charges zero interest during an introductory period. However, be mindful of your current credit health when opening a new credit card, as most vendors will run a hard credit check before approval. And remember to stay on top of your monthly credit card payments to help you maintain a balanced credit utilization score.
Is buy now, pay later right for you?
While BNPL can be an option for financing purchases when you have immediate budget restraints, it's important to use these services responsibly. Always be sure to research fees, use reputable providers and remember: If you can't afford it today, there's nothing wrong with saving up for tomorrow.
Ally Bank's Savings Account buckets are a great place to start when saving, without feeling the stress or guilt that may come along with taking out a BNPL loan.
