“Buy now, pay later” is back. It is amazing how many companies have shown up lately to offer these services. A quick google search brought up names like Afterpay, Affirm, Klarna, Sezzle, Splitit, Zip, Zebit and Earnest. The list is growing and PayPal, Visa, Master Card and the major banks are all getting in on this. Even Apple and Amazon are looking into setting up their own offerings. It is growing in popularity in younger consumers and is offered by many online retailers and in stores. More than one-third of US consumers have used such a BNPL (Buy now, Pay later) service once.
It seems so easy: you want to buy a coat for $340 and it’s offered to you to buy in 4 interest-free payment of $85. Why not use this? Or take a once in a lifetime vacation and pay it off over the year?
There are several hazards that might not be clear immediately.
Most of these lending companies do not do any type of background checks on individuals. Many of the providers do not report the use of this service to the credit bureaus, so it doesn’t help you to build your credit score.
If you use BNPL services for several purchases, it is hard to keep track of your total payments and debt. It can tempt you to overspent.
The devil is in the details: each BNPL service has its own charges, obscured in the small print. Interest fees, late fees and payment plans differ. Missing payments will most likely be reported to the credit reporting agencies and could well hurt your credit score.
If you need to return the item, it might take much longer to get a refund than if you had paid upfront.
This easy borrowing could very well cause consumer debt and credit card balances to spike. The worry is that in a downturn, these borrowers will be the first to buy now and NOT pay later.
Anja & Clare
