WASHINGTON — As you’re shopping online, you may have noticed more stores are offering Buy Now, Pay Later options.
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These services allow you to pay off major purchases over an extended amount of time. Many companies divide your total purchase into four installments that are due every two weeks.
“This appeals to people who maybe don’t have a credit card, or even those who do. Maybe you have credit card debt at 20 or 25% interest and you’re wary of adding to it and Buy Now, Pay Later feels like a more responsible form of financing,” said Ted Rossman, senior industry analyst at Bankrate.
Rossman said the use of Buy Now, Pay Later options surged during the pandemic and hasn’t stopped.
According to Adobe Analytics, these services drove $940 million in online spending on Cyber Monday alone.
But Rossman cautions it can also lead to overspending.
“It’s almost like an infomercial, it’s like, oh, four easy payments of 50 bucks, you don’t realize that that was $200 and that it’s due pretty quickly,” said Rossman. “And if you have multiple payments running with multiple providers, it can get confusing and expensive.”
This week, Ohio Sen. Sherrod Brown and other Democrats sent a letter to federal regulators urging them to continue monitoring these products. They’re worried about debt becoming unmanageable.
“You make a mistake and your get socked with fees and interest you didn’t know was coming,” said Brown (D-Ohio). “In any financial transaction, the companies need to let people know what the fees are of any kind and then people can make that decision do, do I still buy this, do I still get this service if you’re going to have some other fee that I didn’t think of.”
We reached out to Affirm, AfterPay, PayPal, and Zip for a comment and only heard back from Affirm.
In a statement, an Affirm spokesperson said, “we underwrite every transaction individually and only approve consumers for what we believe they are willing and able to repay.” The company adds that customers see the full cost of a purchase including any interest up front.
Additionally, Rossman said some buy now pay later companies don’t report to the credit bureaus.
“They don’t know like if you’ve taken out three of these in the past six months and defaulted on two of them. That’s largely unknown,” said Rossman.
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