What’s the deal with buy now, pay later programs?


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The option of making a big purchase today and spreading out your payments over subsequent weeks or months, often interest-free, is proving more appealing to Americans all the time.


A February 2021 Credit Karma/Qualtrics survey found that a little over 40% of Americans have used a “buy now, pay later” service like Afterpay, Affirm or Klarna. Some of the country’s largest retailers — including Walmart and Amazon — have also gotten in on the trend, making buy now, pay later options hard to avoid for many shoppers. These programs are also becoming a popular way to pay for travel.


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While this type of short-term financing can be convenient for consumers, there are some potential downsides to consider, such as the potential to get hit with high fees, the temptation to overspend and missing out on an opportunity to build or improve your credit.


Related: Credit cards vs debit cards

How Does Buy Now, Pay Later Work?

With layaway, you get your hands on a big-ticket item after you complete a series of payments. If you use a credit card to buy something, you may end up paying interest on the purchase if you haven’t paid the card down at the end of the month.


It’s different with buy now, pay later.


Say you want to buy a $250 Vitamix Blender, but you hesitate to fork over the entire purchase price upfront. When you click on one of these buy now, pay later apps at check-out, you can purchase and receive the item right away but may be able to break up the $250 into several (often four) equal, interest-free payments. Typically, the first payment is due at check out, and the remaining three each due two weeks apart.


You may be able to set up installment payments to be automatically deducted from your bank account or credit card. If you choose to use a credit card as the payment, however, you could wind up paying interest on credit-card debt.


Most pay-later apps run a soft credit check (which won’t affect your score) or no credit check at all. Since they don’t require strong credit, these plans can be an appealing option for consumers with a poor credit rating or no credit history.


How do buy now, pay later apps make money? Besides interest and fees charged to delinquent payments, these lenders also typically charge the merchants fees. Retailers are often OK with this because these financing programs allow customers to spend more at their store, either in person or online.

The Downside to Buy Now, Pay Later

While these apps may seem like a win-win for everyone, that’s not necessarily always the case. An August 2021 study by Survey Monkey found that one in six customers who made a buy now, pay later service purchase regretted doing so.


The biggest problem appears to be the interest rates and fees tacked on when people miss payments. Sometimes, you’re allowed to reschedule one payment, but if you miss another, you’ll likely be slapped with fees. And a missed or late payment could affect your credit score.


In the Credit Karma/Qualtrics survey, 38% of buy now, pay later users said they have fallen behind on payments at least once.


Another potential drawback is that even if you make your payments on time, it may not do anything to improve your credit score in the way the other financing methods do. That’s because these loans tend to be short-term and may not create a payment history that is long enough for the merchant to report it to the credit bureaus. Late payments or failing to pay, however, can damage your credit score.


By using one of these plans instead of a credit card, you may also miss out on any perks that your credit card offers, such as reward points or cash back.


And returning an item may also not be as simple. You may have to wait until the merchant informs the pay-later lender about the refund and, in the meantime, keep making payments or risk getting hit with fees.


These apps can also tempt you into spending money on things you don’t really need. In the Survey Monkey study, 15% of the people who regretted their purchase said that ultimately they felt that what they bought was “unnecessary.”

Things to Consider Before You Buy Now and Pay Later

Before you sign up for a buy now, pay later payment plan, it can be a good idea to make sure you fully understand the payment terms and to read the fine print carefully. The terms can be different for every plan. You may be required to pay the remaining balance with biweekly payments over 30 days, or you may have three months or longer to pay off purchases.


It can be wise to make sure these payments will be manageable for you to make and, if you elect to have the installments automatically deducted from your account, that you will have enough money in the account to avoid getting hit with an overdraft fee.


You may also want to find out if any interest will be charged if you make your payments on time, as well as what the penalties will be for being late with a payment.

The Takeaway

The buy now, pay later apps that are popping up everywhere allow people to make purchases that they might not be able to easily afford otherwise. If you purchase an item this way, you will be spreading your payments out over a number of weeks or even months. Most of the time, there will be no interest.


Buy now, pay later plans are often easier to get approved for than traditional credit cards or lines of credit are. But your payment history on the installments won’t bolster your credit history, either. And if you miss payments, you’ll likely be stuck with fees and may damage your credit score.


The key to using these payment plans wisely is to make sure you’re purchasing something you really need and can afford, and to stay organized when it comes to making your payments.


Another way to afford a major purchase is to simply save up in advance by putting some money aside each month until you have enough to pay in full.


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More from MediaFeed:

Shopping online? Watch out for these scam red flags


The ads pop up on your Facebook newsfeed and your favorite online news websites, just enticing enough for you to click to find out more. With a troubled economy, plenty of companies are going out of business, so it may seem smart to save money on clothing or other retail goods if a retailer is throwing one last “going out of business” sale.

But what if that online ad offering huge discounts on designer clothing isn’t what it seems? The Better Business Bureau (BBB) Scam Tracker is getting more reports lately on self-proclaimed going-out-of-business sales “that either don’t exist or don’t live up to the hype,” according to the BBB.

“Unfortunately, the COVID-19 pandemic is driving many retailers out of business,” says the BBB. “What’s bad for businesses often means sales for shoppers, but before you jump on deals, make sure you aren’t falling for a con.




No one can know about every retailer in the world, but if you’re drawn to a clothing ad for a company you’ve never heard of, don’t be too quick to click the checkout button.

First, look up the company on the BBB website to see what kind of grade it maintains and read reviews. Also perform an online search for the company’s address and phone number to see information what pops up.


Related: 5 of the Weirdest Ways Charities are Raising Financial Aid for COVID-19 




Any time you see a dress or suit advertised for a price where the retailer couldn’t possibly make any or much of a profit at all, that could be a red flag. At the same time, reputable retailers frequently offer half-price or lower discounts on out-of-season apparel, for example.

In other words, the ad could be a scam or it could just as easily be legit. Always do your online research before purchasing, since some scammers will mail poor-quality clothing or products. “Other times, scammers never intend to send you anything at all,” says the BBB.




If you see an outfit or product you love at a great price, it’s a good idea to read reviews of the item first to gauge overall buyer satisfaction.  If you see review after review obviously written in a way no native English speaker would talk – “all retail happy shop experience,” for example – be careful.

Those reviews could be planted by the scammer company to reassure you that it is legitimate.


Related: Could You Be a Target of a COVID-19 Extortion Scam?




When you put the company’s name in a search engine and three pages of consumer rip-off complaints appear in the results, don’t even bother researching that company further. Those people writing bad reviews are warning you to stay away to avoid your own bad experience.


Related: 6 Signs of a COVID-19 Contact Tracing Scam




The BBB recommends double-checking the retailer’s website address to make sure scammers haven’t directed you to an “imitation site” that looks like the legitimate retailer’s website.

Signs of a possible copycat website include a URL with extra words or characters, a foreign domain address or unusual domains such as those that end with unfamiliar words such as “bargain” or “app,” according to AARP.




Don’t even think about purchasing from and providing your credit card number to an online retailer whose web address doesn’t begin with “https://,” which signals that your credit or debit card information is secure. Also make sure the address has a lock icon on the purchase page.


This article by Deb Hipp originally appeared on Debt.com and was syndicated by MediaFeed.org.


AAUB / istockphoto


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