Financial advisors warn of risks with Buy Now, Pay Later services
Many plans come with interest, late fees, or lead the consumer to overspend.
MADISON, Wis. (WMTV) - You may have seen the option pop-up when checking out online: pay a lower price now and then fork over the rest in smaller, future payments.
Buy Now, Pay Later companies allow shoppers to buy something online and then divvy up the cost of the purchase over a few weeks or months. It enables consumers to spread out their spending in a series of installments rather than pay for the entire purchase up front.
Apple recently announced it will include this feature as part of its next iOS update in Apple Pay. Amazon also has a BNPL service called Amazon Monthly Payments.
As the Buy Now, Pay Later option becomes more accessible, financial advisors warn there’s also more risk for consumers.
Many of the plans come with interest and late fees. In fact, an April 2022 survey from Lending Tree found that 42 percent of Buy Now, Pay Later users have made a late payment.
Renae Sigall is a branch manager at UW Credit Union says one of the biggest risks is when shoppers overspend.
“It’s becoming easier because merchants are making it easier,” said Sigall. “What you want is so conveniently easier to purchase and it seems cheap.”
Consumers who opt for BNPL plans instead of using a credit card won’t earn credit for making timely payments.
“There’s no real benefits to getting credit in this way,” said Sigall.
Many consumers who consider the BNPL plans may not always be in the best financial situation to take on more debt.
“How are you budgeting? How are you making sure that every dollar you bring in each month has a home and a responsible home?” advised Sigall. “Keep in mind you have to pay yourself first.”
However, if shoppers review the payment plan carefully and know what they’re signing up for, there are some people for who the BNPL option will work well for.
“If you know the risks, you’re responsible, and you’re making a purchase that is necessary, it will be good for some folks,” said Sigall.
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