Buy Now, Pay Later: A Growing Trend with Hidden Costs
More Shoppers than Ever are Using Buy Now, Pay Later Plans
More shoppers than ever are on track to use ‘buy now, pay later’ plans this holiday season, as the ability to spread out payments looks attractive at a time when Americans still feel the lingering effect of inflation and already have record-high credit card debt.
Buy Now, Pay Later: A Growing Trend
The data firm Adobe Analytics predicts shoppers will spend 11.4% more this holiday season using buy now, pay later than they did a year ago. The company forecasts shoppers will purchase $18.5 billion worth of goods using the third-party services for the period Nov. 1 to Dec. 31, with $993 million worth of purchases on Cyber Monday alone.
The Appeal of Buy Now, Pay Later
Buy now, pay later can be particularly appealing to consumers who have low credit scores or no credit history, such as younger shoppers, because most of the companies providing the service run only soft credit checks and don’t report the loans and payment histories to the credit bureaus, unlike credit card companies.
The Hidden Costs of Buy Now, Pay Later
Consumer advocates warn that shoppers who sign up for the payment plans using a credit card can be hit with more interest and fees. That’s because individuals open themselves up to interest on the credit card payment, if it’s carried month to month, on top of any late fees, interest, or penalties from the buy now, pay later loan itself. Experts advise against using a credit card to pay for these plans for this reason.
What to Watch Out for When Using Buy Now, Pay Later
Consumer watchdogs also say the plans lead consumers to overextend themselves because, for example, not paying full price up front leaves, in the shopper’s mind at least, more money for smaller purchases. They also caution consumers to keep careful track of using multiple buy now, pay later services, as the automatic payments can add up, and there is no central reporting, such as with a credit card statement.
Conclusion
While buy now, pay later can be an attractive option for consumers, it’s essential to be aware of the potential hidden costs and pitfalls. Consumers should carefully consider their financial situation and budget before using these services, and be mindful of the potential risks and consequences of overspending.
Frequently Asked Questions
Q: What are the benefits of buy now, pay later?
A: Buy now, pay later allows consumers to spread out payments, making it easier to purchase items without having to pay the full amount upfront. It can also be appealing to consumers with low credit scores or no credit history, as most companies providing the service run only soft credit checks.
Q: Are there any risks associated with buy now, pay later?
A: Yes, there are risks associated with buy now, pay later. Using a credit card to pay for these plans can result in additional interest and fees. Additionally, consumers can face fees, interest, or the possibility of being locked out of using the services in the future if they miss a payment.
Q: How can I avoid overspending when using buy now, pay later?
A: To avoid overspending, consumers should carefully consider their financial situation and budget before using buy now, pay later services. They should also keep track of their payments and avoid using multiple services, as the automatic payments can add up.