If you're considering buying a new couch for $800, the option of spending $100 a month for 8 months with zero percent interest might seem appealing. However, research indicates that this approach can lead to challenging financial situations compared to paying for the couch upfront.
You've likely encountered these options online. When making a purchase, instead of charging the entire amount to your credit card or debit account, you might see the option to buy now and pay later.
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It sounds convenient, right? Spreading out payments without penalties allows you to keep extra money in your account for longer. Yet, experts caution that this can lead to mounting financial pressure.
"Buy now pay later is just a modern-day version of what we used to call layaway,” said Darrin Duber-Smith, a professor of marketing at Metropolitan State University of Denver.
According to the Harvard Business Review, consumers who used buy now, pay later (BNPL) services were 9% more likely to make a purchase, and the number of items purchased increased by 10%. This trend was not just temporary; research examining the shopping habits of nearly 300,000 people showed that these increases continued for almost six months.
"It's just the need. I think there's not a need amongst higher-income people to put off the inevitable payment that we all know is coming,” Duber-Smith stated.
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Duber-Smith also noted that these financing options are especially attractive to lower-income individuals. The Harvard Business Review study supports this, indicating that BNPL options provide a greater sense of control over budgeting, as costs seem more manageable.
However, the downside is that this perception of control can lead to overborrowing and financial strain, as those small monthly payments can accumulate quickly.
"I think we're spending too much and that's the bottom line,” Duber-Smith concluded.
This story was initially reported by a journalist and has been converted to this platform with the assistance of AI. Our editorial team verifies all reporting on all platforms for fairness and accuracy.
