The Hidden Cost of Buy Now, Pay Later

Why it’s hurting Millennials and Gen-Z Homebuyers

Have you recently been tempted by the option to “Buy Now, Pay Later” (BNPL) – the short-term, often interest-free financing option that lets you make purchases and pay for them in a series of smaller, regular installments? Perhaps you are a big advocate. Younger generations, in particular, are increasingly using platforms like Klarna, Afterpay, and Affirm to enjoy greater flexibility when making large purchases. In fact, the program has effectively changed how younger generations shop online.

But while BNPL programs make large purchases more convenient and manageable, they can lead to overspending and debt, impacting the ability of Millennials and Gen-Z to save for long-term goals like homeownership.

If you’re tempted to try one of these programs, or regularly use BNPL options, you should understand the risks, such as potential late fees and impacts on your credit if payments are missed. 

What is Buy Now, Pay Later?

Buy Now, Pay Later (BNPL) programs let you split a purchase into smaller, more manageable payments instead of paying the full amount upfront. At checkout, you choose BNPL as your payment option, and your total gets divided into equal installments – often with no interest if you pay on time. For many, it feels like an attractive middle ground between paying cash and putting the purchase on a credit card.

How BNPL Works at Checkout

BNPL has gained a lot of traction with younger consumers, especially Millennials and Gen Z. Why? Because it’s simple, fast, and doesn’t always require a credit check. You can shop online or in-store, take home what you want today, and spread the cost over weeks or months. The smaller installments make bigger-ticket items feel less overwhelming, and the convenience of getting approved instantly at checkout keeps the process stress-free.

Why Younger Generations Use BNPL

You’re not alone if you’ve noticed BNPL popping up everywhere. In fact, research shows that over 40% of Millennials and more than 50% of Gen Z consumers have tried BNPL services in the past year. And those numbers are only expected to grow as these options become a standard part of the shopping experience.

The Hidden Costs of BNPL

You might think BNPL feels harmless. But when you dive deeper, you’ll uncover some hidden pitfalls that could quietly derail your finances:

Overspending due to “small payment” psychology: Breaking a $100 purchase into $25 installments feels painless. But multiply that across several purchases, and suddenly you’re juggling far more than you planned.

Late fees and interest: Miss a payment and those “no-interest” plans can hit you with late fees – or even interest – that make your purchase more expensive than expected.

Credit score impact: If you fall behind, some providers report missed payments to credit bureaus. What started as a $25 slip-up could lower your credit score and hurt future borrowing.

A $100 Example

For example, a single $100 purchase feels manageable when it is split into four $25 payments. But if you add three more BNPL purchases, you’re suddenly paying $100 a week. And just one missed payment turns into late fees – and a bigger financial headache.

How Overspending Affects Long-Term Financial Health

Using BNPL too often doesn’t just hit your wallet today – it can slow down your bigger financial goals in three fundamental ways:

Reduce savings: Every $25 payment you commit to is money you’re not putting toward an emergency fund, retirement, or a future down payment on a home. Small detours now can delay milestones later.

Harder to qualify for loans: If BNPL balances pile up, lenders may see you as overextended. That can make it tougher to qualify for a mortgage, car loan, or even a credit card.

Stress from debt: Carrying constant payments impacts more than your bank account. The mental burden of juggling due dates and debt can create anxiety that affects your overall well-being.

Homeownership vs. Consumer Debt

BNPL provides instant gratification – you get what you want now and worry about the payments later. Buying a home, on the other hand, takes patience, planning, and consistent saving. If homeownership is your goal, the habits you build today matter.

Instant Gratification vs. Long-Term Goals

When you apply for a mortgage, lenders look closely at your debt-to-income (DTI) ratio. Every monthly payment – whether it’s a credit card, car loan, or BNPL plan – is a strike against you. A pattern of high spending can raise red flags and reduce how much you qualify to borrow.

Let’s say you’re making BNPL payments amounting to $200 a month. That $200 could reduce the size of the mortgage you’re approved for because lenders consider it money already spoken for. In other words, short-term shopping could directly shrink your long-term buying power.

Steps Millennials and Gen-Z Can Take

Managing BNPL responsibly starts with gaining a heightened awareness of your spending habits.

Track expenses: Keep an eye on every purchase and set monthly limits to avoid piling up payments.

Prioritize needs vs. wants: Ask yourself, “Do you really need it now, or is it just convenient?” Focusing on essentials helps protect your budget.

Pay off balances quickly: Making on-time BNPL payments prevents fees and keeps your credit in good shape.

Build savings and credit: Making on-time BNPL payments prevents fees and keeps your credit in good shape.

How Gershman Mortgage Can Help

Gershman Mortgage isn’t just here to lend money – a we’re here to guide you. As your trusted partner and advisor, we provide education and support to help you prepare financially for homeownership, from understanding your credit to setting realistic savings goals.

More Than a Mortgage Lender

We offer comprehensive budgeting tools, financial planning resources, and a streamlined pre-qualification process. You can see exactly how close you are to buying your home and what steps you need to take next.

Gershman will be by your side throughout your homeownership journey. We’ll ensure you receive the right guidance and support, while you can enjoy today’s conveniences (like BNPL programs) without letting short-term spending derail your long-term objectives.

Take Control of Your Financial Future

BNPL programs can be convenient, but it’s easy to let small payments quietly add up. By tracking spending, paying balances on time, and prioritizing savings, you can enjoy today’s purchases without jeopardizing tomorrow’s goals.

Your path to homeownership starts with smart financial habits. Take the first step today by exploring Gershman Mortgage’s tools, resources, and loan programs. Check your pre-qualification, plan your budget, and see how close you are to making your dream home a reality.

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About Gershman: Communities, families, and homes are at the heart of what we do at Gershman Mortgage. Our founding principles are based on the core values of honesty, integrity, the entrepreneurial spirit, and putting our customers first. We are passionate and committed to customer service and strive to ensure that we exceed the expectations of our customers. We are a customer-centric company devoted to creating and maintaining long-lasting relationships.

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