Buy Now, Pay Later (BNPL) programs have established themselves as a payment option for many consumers looking to purchase goods and services. The programs allow buyers to pay for goods and services in installments – in some cases without interest – over a specific period of time.
BNPL becomes even more popular as the holidays approach, especially for many cash-strapped millennials and Gen Z consumers looking to get what they want at a price and pace that fits their budget. . Even big retailers like Amazon, Walmart, and Target have partnered up with BNPL companies like Affirm and Sezzle to offer the option to pay for customers.
Sounds good, doesn’t it? Financial experts advise consumers not to rush to buy now, pay for purchases later, noting that if consumers don’t handle BNPL deals properly, they could do more harm than good in the long run.
While some buy now, pay later, businesses charge no interest, it normally depends on whether a consumer makes all of their payments on time. If a consumer breaches a payment agreement by being late or missing a payment, additional fees are charged.
Other companies, including Affirm, charge interest. Quadpay and Klarna, two other BNPL platforms, also have “deeply buried” language in their terms and conditions that late and missed payments can impact consumers’ credit scores, according to the Los Angeles Times.
According to credit expert John Ulzheimer, BNPL agreements can cause the same amount of financial damage as credit cards if not managed properly, but don’t necessarily offer the same benefits.
“People tend to lose their minds financially, just around Black Friday,” Ulzheimer said. CNBC. “So when you combine a higher default rate with more debt, which happens at the end of the year, because of the holiday shopping activity, you are combining two pretty dangerous things.”
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His sentiment was echoed by Ted Rossman, senior industry analyst at Bankrate.com. “If you spend too much, pay late and rely too much on it, [buy now pay later] could be bad, ”Rossman said.
Buy now, pay later, companies don’t offer the same consumer protections that traditional credit cards do either. It can be a slippery slope and some consumers have learned the hard way. Brittany Conn, 30, was one of them.
Conn used Klarns to buy furniture from Wayfair when she moved into her new apartment in January. One of the objects, a library, never arrived. Conn said she had had a hard time getting her money back and it took months and countless emails and chats to resolve the issue.
“It was just an uphill battle, just email after email and chat after chat, and it got to a point where my chats were no longer answered,” Conn told the LA Times.
Conn filed a complaint with the Better Business Bureau, but said she still wanted to continue using BNPL apps. “It’s kind of nice to be able to say, ‘Oh, you know, I can’t afford to buy this right off the bat, but I can split it into four payments and afford it that way,'” said Conn.
Financial experts said consumers should exercise caution and even a spokesperson for Affirm said “consumers should fully understand the transaction.”
“It could be used selectively, but I wouldn’t put all of my eggs in that basket long term, because then you will miss out on other benefits,” Rossman said.