You may have taken out a Buy Now, Pay Later (BNPL) loan, thinking it’d be a simple way to break a purchase into smaller payments. But if you’ve missed a payment — or you’re juggling several BNPL plans at once — you might be wondering what happens next. And more importantly, if you’re struggling, is BNPL eligible for debt relief? We spoke with an expert to break down how BNPL fits into the debt-relief world, what makes it different from traditional loans and what you should know before taking one out.
Does BNPL qualify for debt relief?
BNPL can qualify for debt relief, but it’s not as straightforward as traditional debt, like credit cards or personal loans. That’s because BNPL companies operate differently from banks and credit unions.
“It all depends on the buy now, pay later provider,” says Bruce McClary, spokesperson at the National Foundation for Credit Counseling (NFCC). Many of these lenders are fintechs with their own rules, which can complicate the debt-relief process and make it vary from lender to lender.”
Debt relief companies also usually require clients to have a minimum amount of debt to qualify for their programs. Some companies set this minimum at $7,500, while others require $10,000 or more. However, the average BNPL loan balance is about $760, according to Morgan Stanley, and this number varies widely depending on household income.
Because of these smaller balances and the differences between BNPL providers, many users may not meet the debt relief program thresholds.
What to know before taking out a BNPL loan
Taking out a BNPL loan can be helpful if you need to break up payments and are confident you can pay it off on time. However, McClary warns that people need to be very careful with buy now, pay later to avoid serious consequences.
“If you miss a payment or don’t follow the original terms, things can change quickly,” says McClary. “A 0% offer can turn into a high interest rate situation, and late fees and penalties may apply.”
On top of that, not all BNPL payments show up on your credit report, but unpaid debt can still be sent to collections. A LendingTree survey found that more than four in 10 (41%) BNPL users paid late in the past year, making this a common and significant risk.
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Balance transfer fee
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Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select’s editorial staff.
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Balance transfer fee
Either $5 or 3% of the amount of each transfer, whichever is greater.
Foreign transaction fee
2.7% of each transaction after conversion to US dollars
Tips for paying down BNPL balances
Communicate early and often with your BNPL lender
Don’t wait until you miss payments to contact your BNPL lender. If you notice any signs of trouble ahead, reach out proactively. Explaining your situation early can help you avoid late fees, penalties or more severe consequences.
“It’s always better to reach out before things get really bad — before you miss a payment or have trouble sticking to your repayment plan,” McClary says. “Talking directly to your lender early can help you find a way to avoid trouble. Waiting until after multiple missed payments makes negotiating harder and increases long-term consequences.”
Seek help from a nonprofit credit counseling agency
On the other hand, if you’re already struggling to manage BNPL debt, McClary says that one of the best first steps is to contact a nonprofit credit counseling agency. These agencies provide free or low-cost services like a thorough budget review, debt management advice and an action plan tailored to your financial situation. They are staffed by certified counselors who can help you understand your options without the pressure of fees or sales tactics.
“That initial budget review and determination of suitability is typically offered at no cost,” McClary says. “If you’re already facing financial hardship, you shouldn’t have to pay high fees before figuring out your next steps.”
Nonprofit agencies can also negotiate with creditors on your behalf and help set up manageable repayment plans, which might include your BNPL lenders, depending on the provider.
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For rates and fees of the Blue Cash Everyday® Card from American Express, click here.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
