Buy now, pay later rife with hazards

"Easy money" is plunging Americans into debt with overdraft charges and credit card interest



December 13, 2022 - 2:27 PM

(Kawee Srital On/Dreamstime/TNS)

Buying on credit, which slowed during the height of the pandemic, is back in vogue as many Americans struggle to afford what they need, let alone what they want, in this high-inflation era. Credit card balances are skyrocketing, but just as alarming is the rise of a new credit product known as “buy now, pay later.” About 4 percent of online transactions in North America are done this way, and usage surged nearly 70 percent over the week of Black Friday compared with the previous week. It is now offered for almost every purchase, including for gas and guns.

“Buy now, pay later” resembles once-popular layaway programs, except in reverse. When someone checks out, they are offered the option to purchase an item by paying about a quarter of the price on the spot. Shoppers make another payment two weeks later, a third payment two weeks after that and the final payment at the six-week mark. Consumers get approved (or denied) within seconds for these loans, making them fast and convenient. There’s usually no interest charged, and the debt must be paid off quickly. If used as intended, “buy now, pay later” can be a cheaper and easier alternative to a credit card. Many of the leading players have 4.5- and 5-star rated apps, suggesting there are a lot of satisfied customers.

So what’s the problem? “Buy now, pay later” is largely unregulated, and substantial issues have emerged. Last year, 10.5 percent of users were charged at least one late fee, and several signs indicate delinquencies continue to rise in 2022. Users complain that it is difficult to get refunds and issues can ding their credit score in ways they didn’t realize. But the biggest concerns are that many of these financial technology companies are not doing a sufficient job assessing people’s ability to repay and are using shoppers’ data to suggest more products to buy — on credit.