I see a lot of talk out there about industry “competition”. To me, there is no such thing. In fact, I love to learn from, collaborate with, and highlight my colleagues. I’m a firm believer that together everyone really does achieve more. This is especially true when it comes to credit health, a topic that spans multiple categories all of which hold niche-specific nuances. With all the credit misinformation out there (or lack of any information at all), it’s a beautiful thing when brilliant minds come to the table with practical advice. My motto will forever be “the more the merrier” when discussions of financial freedom are at play!
My friend, Sue Buswell, is one of those brilliant minds! With over 35 years of experience in the mortgage credit industry, she’s a well-respected professional who specializes in credit/score analysis as well as Buy Now, Pay Later (BNPL) loans. I recently had the pleasure of sitting down with Sue on my podcast, Credit Over Coffee(check out the full episode here ), where she blew me away with her knowledge.
The information she shared about BNPL loans is powerful for anyone looking to assess their options, strengthen their credit, and escape the debt cycle. This conversation removes the guesswork and gets right down to the risks and rewards so you can confidently make informed decisions. Take a peek at the in-depth Q&A with Sue below!
Q: Can you explain what Buy Now, Pay Later loans are and how they work?
A: They are point of sale (POS) loans offered typically at checkout. You have the option to pay in full, or choose one of the apps that support that retailer. The dollar amount of the sale dictates the amount of your payments, and they are generally paid in four monthly installments.
BNPL is a type of revolving credit, where the agencies who offer it provide payment processing and credit services, passing transaction fees on to the merchant.
Q: What should consumers consider before opting for a BNPL loan instead of traditional credit options?
A: Like any debt or obligation, the need vs. want convo should take place before you push the button. BNPL was initially a quick solution to get what you wanted and break the payments down. It’s layaway flipped on its head where you get the item, but have to pay it off interest free over four months.
Q: Are there any hidden fees or interest rates associated with BNPL loans that consumers should be aware of?
A: The majority of BNPL lenders do not charge any set up fees and if the loan is paid in full within the term, typically they are interest free. There are several apps that offer both the pay in 4 and 6 month option, 12 or longer month terms with interest rates ranging from 6-36%. Late fees can and will be assessed in all repayments terms.
Q: How do BNPL loans impact a consumer’s credit score, both positively and negatively?
A: Let’s think about how FICO (the score most lenders use) scores a consumer. They require a qualifying account. This account must be open and active with a minimum of six months history to score the file. VantageScore is different in that they score a file with just one month of history within the most recent two years.
These loans are initiated with a soft credit pull, so no score impact there, definite positive.
A negative would be if and when BNPL loans are reported widely, they can negatively impact both score models in two categories — number of new credit accounts and length of time accounts have been established.
Q: Do Buy Now, Pay Later (BNPL) services report to all three credit bureaus, and how does this affect a consumer’s credit score?
A: Today they do not, but there is a lot of conversation around BNPL and tougher regulations.
The most often reported account is Affirm, but I typically only see their longer term loans on credit reports versus the pay in 4.
Q: What are the potential risks or downsides of using BNPL services for regular purchases?
A: My research has shown that the average BNPL user has up to four loans at a time. Wants vs. needs again comes to mind as a huge downside. Research completed in 2024 shows 18% of BNPL users report missing at least one payment, while 29% reported spending more than they intended.
Any debt, BNPL, credit cards, personal loans that are used to supplement your spending carry downsides.
Q: Can you provide examples of scenarios where BNPL loans might be particularly beneficial or particularly harmful to consumers?
A: The benefits come with restraint. The use of BNPL is pretty even across our generational definitions, and many are one-and-done scenarios. A family member used it for a furniture purchase. Helped with their monthly budgeting, paid off interest free in four payments.
Benefit? Easy, cost free and was able to enjoy their new sofa while making those payments.
It is the credit/financially fragile users who are experiencing issues with BNPL. Some are using these services today for groceries and household items. Overextending themselves for daily needs is extremely harmful to consumers that takes significant changes within the consumer’s spending habits to change.
Q: How do BNPL services handle credit disputes, and is the process generally straightforward for consumers?
A:The CFPB began looking into BNPL back in 2021 and they’ve published the requirements that follow long standing consumer dispute/resolution processes:
- Investigate disputes: Buy Now, Pay Later lenders must investigate disputes that consumers initiate. Lenders must also pause payment requirements during the investigation and sometimes must issue credits.
- Refund returned products or canceled services: When consumers return products or cancel services for a refund, Buy Now, Pay Later lenders must credit the refunds to consumers’ accounts.
- Provide billing statements: Consumers must receive periodic billing statements like the ones received for classic credit card accounts.
Q: What is your experience with the customer service of BNPL companies? Are they typically easy to get a hold of when issues arise?
A:Bankrate released a survey where consumers, mainly Gen Z, shared their issues with BNPL, and of those stated issues (only two) focused on creditor issues such as difficulty returning the item or receiving their refund, or dissatisfaction with the purchase/experience. The majority, over 40%, stated no issues.
Q: In cases where payments are missed or late, how do BNPL companies typically respond, and what impact does this have on the consumer?
A: Freezing the account from future purchases is common practice, then there are the financial impacts.
A late payment will typically incur a fee, although these agencies are seeing those fees fall under the CFPB minimums for late fees. The process follows closely to that of standard revolving credit, where an initial late payment will incur a fee, with subsequent lates incurring additional fees, or even collection action in the event of default.
As the majority of these accounts are unreported on credit files, the consumer may not see any credit impact unless and until a collection agency receives the account and reports the debt.
Closing Thoughts
Great info, right? To listen to the full episode, you can tune in here. It’s our hope that with this BNPL awareness, you’ll be able to overcome blindspots and make the best decisions for your credit health and financial future.
Let us know what you thought of this episode here. We look forward to connecting with you!
