I’m a Finance Expert: 3 Pitfalls of Holiday Layaway and Buy Now, Pay Later
Written by
Cindy Lamothe
Edited by
Amber Barkley
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The holidays are a time for generosity and gift-giving — but it shouldn’t come at the cost of your financial peace of mind.
GOBankingRates spoke with Kevin Shahnazari, founder and CEO of FinlyWealth, and Shirley Mueller, finance expert and founder of VA Loans Texas, to discuss the pitfalls to be aware of with holiday layaway and buy now, pay later (BNPL) plans.
“BNPL plans can feel like a convenient way to stretch your holiday budget, but they come with hidden costs and risks that many shoppers overlook,” said Mueller. Below are the pitfalls to keep an eye on.
Hidden Costs and Risks of BNPL
“In my experience, one of the biggest pitfalls is the potential for deferred interest,” Mueller said. “If you miss a payment or fail to pay off the balance within the promotional period, the interest can retroactively apply to the entire purchase amount, and it’s often at a much higher rate than typical credit cards.”
She said these plans can lead to over-purchasing, since the payments seem manageable upfront, creating a snowball effect where your financial commitments quickly outpace your income.
Shahnazari agreed. “Many individuals underestimate the impact of interest rates and fees that can accumulate over time.”
For example, he said, although BNPL appears to be an attractive option because of its immediate gratification, it often comes with high interest rates that can lead to significant debt if payments are missed or delayed.
“In my practice, I have seen firsthand the pitfalls of depending on these payment plans without having a full understanding of what their terms entail,” he said. “A client, for example, used BNPL for holiday shopping; by the next year, she was burdened with unanticipated fees and a weighty debt load.”
He stressed the importance of reading the fine print and understanding the payment schedule if you choose a BNPL plan, so you don’t fall into a cycle of debt.
Layaway Plans Are Risky
Another danger, according to Shahnazari, is layaway plans. “It allows the consumer to lock in goods without having any upfront payments.”
However, he said it also usually demands a non-refundable down payment and has penalties if the payments are missed. This becomes problematic during holidays, when consumers might not see these added expenses coming their way.
“Understanding the full scope of payment options is crucial,” he said. “What seems like a convenient solution can quickly become a financial trap.”
Impact on Credit and Budget
Another hidden risk is how BNPL plans affect your credit and overall financial health, said Mueller. “While some plans don’t report activity to credit bureaus, others might, and late payments can damage your score.”
She added that managing multiple payment plans can complicate your budget, especially during an already expensive season.
“If funds are tight, missing even one installment can trigger late fees or penalties, making the ‘affordable’ option suddenly costly,” she explained. “I always encourage shoppers to weigh whether the purchase is truly necessary and consider the total cost, not just the monthly installment, before committing to these plans.“
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