TULSA, Okla. — Shopping online is easy. In just a few clicks you can order just about anything and get it shipped right to your door.
It used to be that you needed a credit card to make online purchases, but now more and more online and in-store retailers offer other options, including "buy now, pay later."
This buying strategy lets customers pay using a small down payment and then spread the rest of the purchase over a few payments over a span of a few weeks. If paid in full within the terms of the agreement there is often no interest charged.
It's appealing to customers who may not have funds available to cover the entire cost or who want to avoid making purchases on their high-interest rate credit cards.
Many don't realize that when they use the buy now, pay later option, they are signing up to take out a short-term loan that can have serious consequences if a payment is late or missed.
"It's definitely problematic," said Andrew Pentis with Bankrate, "because if you don't pay this loan, and that's what this is, a loan, if you don't pay it on time, you're likely to face some of the same consequences that you face on other types of consumer debt, such as fees, facing a debt collection and even impact to your credit score."
Pentis combed through data on buy-now-play-later loanscompiled by the Consumer Financial Protection Bureau.
"One of the key takeaways from the CFPB is that more than 6 in 10 buy now, pay later users are borrowing again and again simultaneously. So what that means is that some borrowers are using a buy now pay later loan to purchase one thing, maybe the next day they're using a separate buy now, pay later to to purchase a separate item. And the reason that's concerning is that the more loans you owe, the likelier it is you're gonna fall behind on on them, the harder it is to budget for all those different repayment plans."
The data shows instead of shoppers using buy now, pay later loans as an alternative to credit cards, they're using them as a supplement, so if users get into trouble with repayment it becomes one more thing doing harm to their budget.
To use BNPL responsibly, Pentis recommends:
- If you’re eyeing a “want” as opposed to a “need,” consider a new BNPL loan only after paying off your existing debt.
- Pay attention to lender terms, considering that lenders are now offering BNPL products beyond the typical model of four payments over six weeks. And be wary of months-long terms with credit card-like APRs for loans that are BNPL in name only.
- Budget your BNPL payments and confirm your potentially variable payment due dates to avoid late payment and overdraft fees.
- Better yet, avoid BNPL borrowing altogether by creating a budget and saving up. Many retail purchases may not merit the risk of borrowing.
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