Buy Now, Pay Later: Real Holiday Costs

Buying an expensive item during the holidays, like a TV or a new iPhone, can strain your budget. At checkout, a store may offer to split the cost into smaller payments using buy now, pay later (BNPL). Smaller payments can feel easier than one big one, but they can cost you more later. In a 2026 Federal Reserve survey, twenty-nine percent of BNPL users said they used it mainly because it was the only way they could afford a purchase, and 26% said they paid late. 

This WorkMoney guide explains how BNPL works, how splitting a purchase into four payments can cost you more, and what to do instead.

How Does Buy Now, Pay Later Work?

Buy now, pay later is a type of loan: you get the item now and pay for it later. The most-used BNPL companies are Klarna, Afterpay, Affirm, and PayPal.

Most BNPL companies do a soft credit check, not a hard inquiry, so applying won’t lower your score. 

If you’re approved, you typically pay 25% at checkout and the rest in three equal payments, once every two weeks. If you pay on time, you usually won’t owe any interest or fees.

This can feel like a free loan, making it easy to spend more than you planned. A LendingTree survey found 68% of BNPL users said the loans cause them to overspend. 

What Are the Fees With BNPL?

Many pay-in-4 plans charge no interest or fees if you pay on time. Terms vary by plan, and late fees may apply if you miss a payment.

• Afterpay: up to $8 per missed payment, capped at 25% of your order value, with about a 10-day grace period before the first fee hits.

• Klarna: up to $7 per missed payment, also capped at 25% of your order value, with about a 10-day grace period.

• Affirm and PayPal Pay in 4: no late fees at all, which makes them cheaper when life gets messy.

The fee itself is only part of the cost. If you don't pay, the debt can go to collections, and a collection account can sit on your credit report for years.

Here is how fast a small purchase could grow. Take a $200 pay-in-4 order:

• One missed payment could add an $8 late fee.

• If that failed autopay also triggers a bank overdraft, add $30.

• Your $200 purchase now costs $238 in total, including fees, and you still owe the remaining installments.

What Happens When You Stack BNPL Plans? 

One BNPL plan might feel minimal, since it’s one payment every two weeks. But one plan can quietly turn into several. One in four BNPL users has had three or more loans open at once.

Say one plan pulls from your checking account on the 1st and 15th, another on the 8th and 22nd, and a third on the 11th and 26th. That’s six withdrawals a month to track.

Added to your monthly bills, these withdrawals can stretch your budget. If one comes out when your balance is low, your bank may charge an overdraft fee. In the Fed’s survey, 11% of BNPL users said a payment triggered an overdraft or nonsufficient-funds fee in the past year. 

Does BNPL Affect Your Credit?

Most pay-in-4 plans skip the hard inquiry. But monthly financing plans — the ones that stretch bigger purchases over many months — can run a hard inquiry before approving you. That’s the same kind of credit pull you get with a credit card or a car loan, and it can lower your score a few points and stay on your report for up to two years.

Payment reporting is less clear. Most pay-in-4 lenders don’t report your payments to the major credit bureaus. Affirm reports all of its loans to Experian and TransUnion, but the company says that data doesn’t count toward your credit scores yet. So paying on time won’t build your credit, even though 53% of BNPL users in the Fed’s survey thought it would.

Missing payments can still hurt you. If you stop paying and the lender turns the debt over to a collector, the collector may report it, which can lower your scores. That kind of negative mark can stay on your credit report for up to seven years and make it harder to get approved for a car loan or a mortgage.

How Can You Cover Holiday Gifts Without BNPL? 

Splitting holiday gifts into BNPL payments can leave you with payments you can’t keep up with in early 2027. These steps can help you plan ahead: 

• Start a gift savings fund this week. Open a separate savings account or use a labeled envelope, and set aside money every payday. Setting aside $25 a week for eight weeks gives you $200. It may not cover every gift, but it means you'll put less on a credit card or BNPL plan. 

• Set two spending limits, in writing. Pick a per-person limit and a total holiday limit, and write both down where you’ll see them. If a gift idea goes over the per-person limit, pick a different gift.

• Use AccessPerks before you use credit. Your AccessPerks membership includes discounts of up to 50% at national and local retailers. If a discount lowers the price enough, you may not need to split the cost at all. Check the discount first, then decide how to pay.

• Give an experience. A home-cooked dinner, a baking day with your kids, a photo walk, a free museum day: these cost little and give you time together.