Buy Now, Pay Later is an evolving trend in the world of online shopping. These services allow consumers to pay for purchases in bi-weekly or monthly installments, even for amounts as little as $30. These services are unique in that they bring loan options directly to consumers at a particularly vulnerable time – during checkout. By breaking the total into smaller amounts, purchases can seem more affordable even though the actual price is the same (or higher including potential interest and fees). As the result, consumers are more likely to continue with a purchase they may have delayed otherwise, increasing revenue for both the retail partner and the Buy Now, Pay Later provider.
Most providers charge no interest for “pay-in-four” programs, which divide your purchase into four bi-weekly installments. Monthly payment options, on the other hand, are typically subject to interest changes that are comparable to or high than typical credit card rates – but without the interest-free grace period offered by many credit cards.
Regardless of the repayment term or purchase amount, significant fees may be charged for late payments. While exact fees vary by lender, a flat fee of $10, for example, may be charged for a single missed payment. If the outstanding balance on the loan is $50 or even $100, the equivalent interest rate is exponentially higher than the rate charged by any credit card.
While these services typically conduct soft credit checks, some may conduct hard credit checks, which can lower a customer’s credit score. And if a customer fails to make their payments on time or defaults on their payments, it can have a negative impact on their credit score.
If you are considering using these services, carefully consider the risks and benefits before making your decision. While this may be a more convenient way to make purchases for some, consider late payment fees, interest rates, and the potential for credit report damage before you sign up. Our best advice, if you choose to Buy Now, Pay Later; make sure you are making your payments on time and carefully consider interest charges.