Buy now, pay later loans are becoming a popular way to purchase large items with low payments. BNPL is a type of loan that allows consumers to take their item home immediately while paying for it in bi-weekly installments. The pandemic has created an e-commerce boom, providing even more platform for utilizing BNPL loans. Although these loans allow easy access to items that consumers want or need; it can be very easy to rack up a tab using these sites.
There are more than two dozen companies offering BNPL loans, including Affirm, Klarna, Afterpay, and PayPal. Terms and features differ between providers, with some offering longer-term loans that charge interest.
Consumers typically encounter the BNPL option when shopping online or through a mobile app, although some physical stores are also starting to offer it. Most BNPL loans bear no interest and the application process is faster and less cumbersome than other forms of credit. The lender may not even pull a credit report.
While this may sound great to the consumer, there are some downsides to consider when considering a BNPL loan. Some protections that apply to credit cards may not apply to BNPL loans. For example, consumers may not have the ability to dispute a charge if something goes wrong.
Follow BBB’s tips for smart buying:
• Think of it as a loan. Even though many installment payment services only have a few small payments and 0% interest, it is essential to remember that you are always borrowing money to enjoy a product before it is paid for in full. . Consider whether paying the full price means spending more than you can actually afford, and make your decision accordingly.
• Stick to a budget. Consider how semi-monthly or monthly payments might affect your budget – even if the payments seem small. Will they cut funds set aside for necessary expenses, like rent or groceries?
• Read the fine print. Before signing up to pay in installments, understand exactly how the service works. Read the fine print of the agreement to find out which company is financing, how long the financing terms are to pay off the purchase and in how many installments, how they handle late payments and how much interest is charged, if any. applicable.
• Get to know the finance company. Research the finance company on BBB.org to make sure it is a reputable company with honest business practices.
• Know how your credit could be affected. Keep in mind that unpaid debts may be sent to collection agencies and after a 90 day overdue period may be reported to credit bureaus. This could have a negative impact on your credit score.
For more tips from BBB, visit BBB.org. And if you spot a scam, whether or not you lost money, report it to BBB’s Scam Tracker at BBB.org/ScamTracker and the FTC at ReportFraud.ftc.gov. Your story can help other consumers avoid similar scams.
Rick Walz is the president and CEO of the Better Business Bureau serving northern Indiana, which serves 23 counties. Contact the BBB at 800-552-4631 or visit www.bbb.org.