Complaints are soaring about the “Buy Now, Pay Later” financing schemes that businesses increasingly are offering as an alternative to up-front payments in full. Consumers making purchases as small as $50 online are often offered these payment plans, which can turn into debt traps. Here are some tips to avoid the interest and fees that often come with these “deals.”
Do your homework before agreeing to a “Buy Now, Pay Later” program. This means reading the terms and conditions. If you don’t want to take the time to read the fine print, you shouldn’t agree to the payment plan.
Understand the way BNPL plans usually work. Purchases are generally split into four payments, with the first due at checkout. The other three payments are typically due every two weeks and are billed to a credit card, debit card or bank account that you provided at the outset. This means you’re entering an agreement for the privilege of paying for something over as little as six weeks.
Realize that some BNPL programs charge interest, although most don’t if you make your payments on time. If you’re late on a payment, some charge late fees. In some cases, you may have to pay interest not just for one month, but for the duration of the repayment period.
Be sure you always have adequate funds in your accounts to make BNPL payments. The BNPL payments may fall at different times of the month from your regular credit card statements, so be sure to budget appropriately.
Realize that BNPL plans don’t offer the federal protections that come with purchases you make by credit card. If an item purchased with BNPL is faulty, lost or stolen, that does not mean you will have protection against having to repay the BNPL loan. The federal government offers that safeguard for credit card users.
You are not guaranteed a refund. If you want to return a product you bought with BNPL, you may not be able to get a refund. Look at the fine print to find out whether refunds are available.
Know that most BNPL programs don’t report your dealings to the credit bureaus that determine your credit score. If you’re looking to build credit, there are better avenues, such as a secured credit card, rather than purchasing products with BNPL.
When agreeing to BNPL company terms and conditions, you may be agreeing to having personal information shared with third parties. While it is understandable that BNPL companies can share your information with debt collection companies, they may also share it with other third parties, such as Google, if you decide to track packages through their apps. Read the fine print.
Don’t get caught up in the ability to spend. Just because you can afford the first payment for a BNPL purchase doesn’t mean you can afford them all. And, if you make more than one purchase through BNPL, multiple BNPL payments can start to eat up your spending for the month and it can become confusing about when which payments are due.
Consider whether you can delay the purchase until you have the money. Will paying for something over six weeks really help you? It is typically best to save up and pay for items outright rather than be subject to interest and late fees.
Consumer Watchdog, PIRG
Teresa directs the Consumer Watchdog office, which looks out for consumers' health, safety and financial security. Prior to her current role, she worked as a journalist and columnist covering consumer issues and personal finance for two decades for Ohio's largest daily newspaper. She is the recipient of dozens of state and national journalism awards, including Best Columnist in Ohio, Best Business Writer in Ohio, and National Headliner Award for coverage of the 2008-09 financial crisis. Among the accomplishments she’s most proud of is receiving a journalism public service award for exposing improper billing practices by Verizon that affected at least 15 million customers nationwide. Her work caused Verizon to reach an $80 million settlement with the FCC, the largest ever imposed at that time. Teresa and her husband live in Greater Cleveland and have two sons and a dog. She enjoys biking, house projects and music, and serves on her church missions team and stewardship board.