Finance
BNPL payment plans require careful budgeting to avoid costly fees, expert says
‘The Big Money Show’ co-hosts discuss buy now, pay later spending options and the impact it will now have on your credit score.
Using “buy now, pay later” (BNPL) has become increasingly common in recent years as people look to split up and finance purchases they make.
According to Credit Sesame financial analyst Richard Barrington, some key steps people should take as they utilize BNPL include budgeting beforehand, reviewing the terms of the plan, determining what fees could be associated and being prepared for automatic payments.
“If you need BNPL to be able to pay for something, you have to question how you’re going to come up with the money to make the BNPL payments when they come due,” he said, noting budgeting ahead of time can help someone figure out if they can foot the bill for what they’re buying and any debt they could build up because of it.
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He recommended reviewing what income will come in “over the term of the BNPL payments” and then subtracting “all the essential expenses you’ll have during that time” to help “see if you’ll have enough left over to cover BNPL payments.”
“If not, you risk missing one of those BNPL payments and incurring late fees,” he said.
Budgeting beforehand can “also help you avoid not being able to afford one of those essential expenses because you committed too much money” to BNPL, according to Barrington.
The Credit Sesame financial analyst urged people taking out BNPL loans to take a close look at the terms of the plan they’re signing up for.
“Know how much you have to pay and when,” Barrington said. “Also pay attention to what happens if you don’t make a payment on time.”
Knowing the timing and size of the BNPL payments can help avoid incurring a late fee, he said.
BNPL late fees averaged $7 for a loan taken out on a $135 purchase, according to the Federal Reserve Bank of Richmond.
Barrington advised “avoid signing a BNPL agreement you can’t take home and read first.”
“Many BNPL arrangements are made at the point of sale, like in a store. That means you’re trying to understand the terms while you’re in a hurry and with lots of distractions around,” he said. “Instead, take the agreement home with you to read, and then come back to the store to make the purchase. If it doesn’t seem worth that effort, perhaps you don’t really need to buy the item.”
Members of the public pass by a floor advertisement for tech firm Klarna, a European ecommerce company which allows users to buy now, pay later, or pay in installments. (Daniel Harvey Gonzalez/In Pictures via Getty Images / Getty Images)
BNPL can have “strict payment terms” that can lead to late fees, so it’s important to know what the costs associated with the plans could look like, according to Barrington.
“These fees may look like they’re fairly low dollar amounts, but since BNPL purchases are generally for relatively low-priced items, they can represent a large percentage of the purchase price,” he explained.
Some ways people can steer clear of late fees from BNPL include budgeting and knowing the terms of the installment plan they’re using.
On top of that, he said, creating calendar reminders or using automatic payment options can be helpful.
When it came to automatic BNPL payments, Barrington noted people should “pay close attention to the amount and schedule” because “otherwise you may find yourself hit with an overdraft fee if your bank account doesn’t have sufficient funds to cover the payments.”
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Some BNPL services make enrollment in automatic payments mandatory, he said.
However, people should not take out more than one out at a time, according to Barrington.
“People often turn to BNPL loans when they’re having trouble making ends meet,” he said. “That’s not going to get any easier if they take on multiple BNPL obligations that they’re going to have to come up with the money for in the months to come.”
Some retail experts and financial lending providers are saying buy now, pay later programs are the new layaway. (iStock / iStock)
He said to “avoid using BNPL for anything whose useful life lasts less time than it will take you to finish paying off the BNPL loan.”
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Another tip that Barrington had was to look into secured credit cards or “becoming an authorized user on someone else’s card” instead of BNPL.
“Secured credit cards or having someone sign you on as an authorized user of their card can be a way in for people who don’t have good enough credit to qualify for a card on their own,” he said.
Credit requirements can differ from card to card. Americans had FICO Scores of 715 on average last year, according to Experian.
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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