Buy now, pay later (BNPL) programs have caught on as a payment option for many consumers looking to purchase goods and services. They allow shoppers to pay for goods and services in installments and in some cases, interest-free, over the course of a specific period.
BNPL is becoming even more popular as the holidays approach, especially for many cash-strapped millennials and Gen Z consumers looking to get the things they want at a price and pace that fits their budget. Even major retailers like Amazon, Walmart and Target have partnered with BNPL companies such as Affirm and Sezzle to offer the payment option to customers.
Sounds great, right? Financial experts advise that consumers not be so quick to jump at using buy now, pay later for purchases. They caution if handled improperly, BNPL agreements could do more harm than good in the long run.
While some companies don’t charge any interest, that is normally contingent upon a consumer making all the payments on time. If a consumer defaults by being late or missing a payment, there are additional fees involved.
Other companies, including Affirm, do charge interest. Quadpay and Klarna, two other BNPL platforms, also have language “buried deep” in their terms and conditions that late and missed payments can impact a consumer’s credit score, according to the LA Times.
Credit expert John Ulzheimer said BNPL agreements can cause as much financial damage as credit cards if not handled properly but don’t necessarily offer the same benefits.
“People tend to lose their minds financially speaking, right around Black Friday,” Ulzheimer told CNBC. “So, when you combine a higher delinquency rate with more debt, which is what happens at the end of the year, because of holiday shopping activities, you are combining two things that are pretty dangerous.”
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Ted Rossman, a senior industry analyst at Bankrate.com, echoes the sentiment. “If you overspend, pay late and rely too much on it, [buy now pay later] could be bad,” Rossman said.
BNPL companies also do not offer the same protections to consumers as traditional credit cards. It can be a slippery slope and some consumers have learned the hard way. Brittany Conn, 30, is one of them.
Conn used BNPL company Klarna to purchase furniture from Wayfair when she moved into her new apartment in January. One of the items, a bookcase, never arrived. Conn said she had a lot of difficulties 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 weren’t being answered anymore,” Conn told the LA Times.
Conn filed a complaint with the Better Business Bureau but said she still wants to continue using the BNPL apps. “It’s kind of nice to be able to say, ‘Oh, you know, I can’t afford to buy this right upfront, but I can split it up into four payments and afford it that way,’” Conn said.
Financial experts said consumers need to exercise caution when using BNPL. An Affirm spokesperson also said “consumers should fully understand the transaction” when they are making purchases.
“This could be used kind of selectively, but I wouldn’t put all my eggs in this basket long term because then you’re missing out on other benefits,” Rossman said.