Total: $68 or 4 interest-free payments of $17.

If you know, you know. 

$17 later sounds a lot better than $68 right now. 

Maybe you want to split the cost between paychecks. Or you’re waiting on a Venmo from a friend? That friend. Whatever the case, you pick buy now, pay later. 

And of course—as most of us do—you don’t read the terms and conditions 🍷

WTF did you sign up for?

It’s called a buy now pay later (BNPL) service, like AfterPay, Affirm, or Klarna. They’re the key players, but more and more banks and payment providers, like PayPal, are offering similar services.

It's everywhere.

Normally if you’re buying something online, you just pay the retailer directly. 

But when you use a BNPL service, they pay the retailer and you pay them back. So you’re not saving any money, or paying more money—you’re just spreading out the cost. 

And there is no extra cost to you, so long as you make the payments on time. (You know we’re going to have a talk about this right?)

So how does Klarna make money? 

They work by taking a percentage of the transaction from the retailer. And retailers want to work with them because customers (like you) are more likely to make the purchase with BNPL than paying in full.

It’s basic psychology… shopping psychology 💃

What could possibly go wrong?

BNPL has made it easier than ever for you to make purchases when you don’t have the money.

Unlike credit cards, most BNPLs aren’t running credit history checks on their users before approving them. So you can just sign up and start running a tab. Great idea, if you love debt.

                 $17 over there, $50 over here, $30 god knows where… #MaterialGurl 

                 And all of sudden you owe them like $400 in 6 weeks. 

                 $400 that you don’t have. 

And when payment day rolls around, they either take the money directly out of your account, which could cause you to overdraft and create a bunch of fees, or they mark your payment as late

What happens if you miss a payment?‍

Well obviously, they’re going to charge you a late fee. (Because they can).‍

But the real damage comes when they send your tab to a debt collector and to the credit bureau.‍

And those late or missed payments stay on your credit report for 7 YEARS.

7 years ago Pokemon Go came out… and in 7 years from now you might be needing a good credit history to get a loan or mortgage. 

Which is why building a healthy credit score is so important. 

But they said that it wouldn't affect your credit

Lies. 

72% of users who fell behind on a payment claim their credit score has declined because of it. 

🥴 

Most of these BNPLs have statements on their website claiming they don’t impact your credit score. 

Klarna advertises it on their home page. 

But when you do a bit more research, you’ll find out that they mean: your credit score won’t be impacted by the soft credit check the run on you. 

In Klarna’s Pay Later in 4 Agreement, it literally says: 

“Klarna may employ a debt collection agency to collect payment and report default information to credit bureaus.”

If this is you, don’t be feel bad

This is not a you problem. It’s a BNPL problem. 1/3 of BNPL users have fallen behind on at least 1 payment. 

So you’re not alone. 

And if your credit score has been affected, there are steps you can take to rebuild it. (Keep reading, we got you.)

It's getting so popular, the government's even getting involved

In 2022, almost half of American Gen Zers are expected to use a BNPL. And who can blame them? They pay a lot of money for those brand campaigns. 

But this sort of growth catches Uncle Sam’s attention. Particularly when it comes to the debt side of things. 

It’s becoming such a problem that this past December, the federal regulators at the CFPB opened an inquiry citing concerns over debt accumulation, regulatory requirements, and data collection.

That’s government code for “what loophole are these clowns using to avoid existing credit card laws. And what can we do to stop them.” 

Now if they would just care this much about your student loans 🙃

It can make your credit worse, but can it make it better?

Straight up no.  

They don’t report anything to the credit bureaus unless it’s a late or missed payment. 

So what BNPL does what?

They’re all different, so please, if you do plan to use one, do your research. 🤓

🚨Remember most of these BNPLs have multiple payment programs, so READ THE TERMS AND CONDITIONS (sorry *not sorry* for yelling).🚨

If you are going to use a BNLP here’s some tips to not get f’d

📖 Read the terms and conditions, (AGAIN sorry) so you know what you’re signing up for

✍️ Create a budget (you can make one with Cleo), so you’re not spending money you don’t have

💳 Set up auto pay, so you don’t miss a payment

⌛ Wait a week before buying, so you don’t make a decision you might regret 

BNPLs get 2/10… we do not recommend

The only pros we could find are being able to space out the payments and not collect interest, if the payment is made on time.

And when we offset that with the cons:

1. Encouraging you to spend more then you have
2. Charging you late fees
3. (Potentially) lowering your credit score
4. Not helping you build credit
5. Leading to national debt (ok, teeny stretch, but true)
6. Going around existing credit card law loopholes 
7. Misleading you about their credit reporting practices
8. Sending your debt to debt collectors 
   

 We don’t think it's worth the risks. 

So what’s the alternative?

Well what’s your goal?

Do you literally need something now that you can’t afford? Or you looking to do some actual work on your credit score?

If you’re really in trouble we can spot you up to $100, but we’d much rather you save that for an emergency.

If it’s the credit building thing you’re after, Check out Cleo Builder. It’s literally designed to help you work on your credit score.

Once you’re up and running with a Cleo Credit Builder Card*, you just add money to your security deposit and spend like normal.  

Your security deposit becomes your credit spending limit, which means it’s really tough to end up with risky debt.  

Over time, we report your payment history  card payments to the credit bureaus, which could help you raise youmay helps your score. (If you use it as suggested.) 

If it sounds like something you want to check out - just download the app and type “Credit Builder” to Cleo.

*Cleo Credit Builder Card issued by WebBank, Member FDIC.