Buyer Beware: Buy Now, Pay Later Programs May Come at a Cost
They say it’s the most wonderful time of the year. But ain’t nothing wonderful about the holiday season if you’re low on cash. While inflation has the cost of everything from gas to groceries up sky high, the idea of a new TV showing up under your Christmas tree may seem completely out of reach.
But these days, the popularity of Buy Now Pay Later (BNPL) services like Afterpay, Affirm and Klarna is surging, making big ticket items more accessible to the masses. They offer consumers more time to pay for their purchases by dividing the cost into smaller payments. If you pay on time and in full, those payments often come without added interest. And some consumers find the approval process for BNPL to be easier than trying to get a credit card.
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An August 2022 Consumer Reports survey found that 28 percent of Americans have paid for goods like clothing, electronics and appliances with some sort of buy-now-pay-later program, up from 18 percent in January. And almost 90 percent of users said they were somewhat or very satisfied with the service and would probably or definitely use it again.
It probably won’t be a surprise that younger consumers are most likely to use BNPL for their purchases. Consumer Reports’ January 2022 American Experiences Survey found that among adults aged 18-29, 26 percent have used BNPL, compared with only 10 percent of those aged 60 and older. And when looking at race, the survey found that 40 percent of African American BNPL users have used it at least six times, compared with 29 percent of Hispanic users and 27 percent of white users.
But while BNPL may give you a little more time to pay off your purchases, the folks at Consumer Reports are out to warn people that it may come at a cost. Their research found that 28 percent of people who have used a BNPL service report having had at least one problem, including being overcharged on a purchase and having difficulties returning unwanted items and getting refunds.
They also want to caution people against using BPNL in risky ways such as using credit cards to make payments or having more than four outstanding BNPL purchases at a time. Fifty percent of the survey participants who had missed at least one payment said it was because they expected to have the money but fell short. And of those who missed one or more payments, 21 percent said their debt was forwarded to a collections agency.
So as you do your holiday shopping, be sure to read the fine print of any BPNL service you plan to use. And when in doubt, just pay in cash.
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