‘Buy now, pay later’ schemes are becoming increasingly popular. Experts are worried

More consumers than ever are on the way to using “buy now, pay later” plans this holiday season, as the ability to spread payments looks attractive at a time when Americans are still feeling the lingering effects of inflation and already have record credit card debt. debt.

Data firm Adobe Analytics predicts that consumers will spend 11.4% more this holiday season using buy now, pay later than last year. The company predicts that consumers will buy goods worth 18.5 billion dollars using third-party services during the period of November 1 to December 31, with purchases of $ 993 billion on Cyber ​​Monday alone.

Buy now, pay later may not be particularly attractive to buyers with low credit scores or no credit history, such as younger buyers, because many credit service providers only perform soft credit checks and do not report credit and payment history. credit bureaus, unlike credit card companies.

During this holiday season, buy now, pay later users can also feel more confident if the transaction goes wrong. In May, the Consumer Financial Protection Bureau said buy-now, pay-later companies must comply with other rules governing traditional credit, such as providing ways to seek refunds and dispute transactions.

To use a buy now, pay later program, consumers typically register with bank account information or a debit or credit card, and agree to pay for purchases in monthly installments, usually eight weeks or more. The loan is marketed as having no or low interest, or only conditional payments, such as late payments. Klarna, Afterpay, and Affirm are three of the biggest buy now, pay later companies.

But consumer advocates warn that consumers who sign up for payment plans using a credit card may incur additional interest and fees. That’s because people accrue interest on their credit card payments, if they are made monthly, in addition to any late fees, interest, or buy-now, pay-later penalties. Experts advise against using a credit card to pay for these plans for this reason.

Consumer watchdogs also say that the programs lead consumers to overextend themselves because, for example, not paying the full price up front is, in the consumer’s mind at least, more money for less purchases. They also warn consumers to follow carefully to use more purchases now, pay the latest services, as automatic payments can include, and there is no central report, like a credit card statement.

“Buy now, pay later may be the oldest shopping tool you’ll ever buy,” says Mark Elliot, chief customer officer at financial services firm LendingClub. “The challenge is that it uses too much petrol.”

For retailers, that’s part of the appeal. Retailers have found that customers are more likely to have larger cart sizes or convert from browsing to checking out when a buy now, later payment is offered. Another report from the Federal Reserve Bank of New York cited a study that found that customers spend 20% more when they buy now, pay later and find out.

“The reality is that the rising cost of living and inflation has put many people in a situation where they have to rely on loans,” said Elliot. “The mentality of ‘buy now, pay later’ may be different—people don’t see it as debt—but it is.”

If a consumer misses a payment, they may face fees, interest, or the possibility of being barred from using the services in the future.

Emily Childers, consumer finance expert at personal finance technology firm Credit Karma, said internal data shows that credit card balances are up 50% among Gen Z and millennials by March 2022, when the Fed starts raising rates. offspring.

“Young people enter this holiday season already red,” he said. “And, based on what we see in the data, they continue to bury their heads in the sand and spend money.”

—By Cora Lewis, The Associated Press

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