It’s important to learn more about “buy now, pay later” services such as Klarna, Afterpay, Pay in 4 and Zip – to know whether they will ultimately help or hurt.
There’s an obvious attraction to spreading out the costs of a more expensive item over time (in four equal installments, for example), especially if the product arrives nearly right away. But the decision could prove costly.
Under most such plans, you pay part of the cost immediately to receive the product quickly, but some plans might require a credit check and, even if there aren’t interest charges, fees may be assessed if you make a late payment or want to change payment due dates. Also, if you choose a plan that reports your payments to the three national credit bureaus, you could help or hurt your credit based on your payment performance.
Experts in consumer protection have found three areas of risk:
- Consumers can get “overextended” if they use several “buy now, pay later” services within a short time.
- Some providers of these services may use your data to entice you into more borrowing.
- Consumers may be surprised if they don’t understand in advance any applicable fees and other unexpected terms and conditions.
To alleviate some of these risks:
- Consider limiting these types of services to one or two purchases at a time and to necessities only – so that you can better avoid missing a payment.
- Before committing to such a service, read and understand all the terms and conditions, including repayment terms, any applicable interest rates, any penalties for late payments, etc.
- If you’re making automatic payments from a bank account or debit card, check your account when the first payment is due to ensure that late fees won’t apply. Also, confirm after you’ve made the last payment that additional payments aren’t erroneously withdrawn.
- Don’t use your credit card for payment if it means you’ll get hit with interest payments and/or finance charges from the credit card company.
Some additional consumer tips:
- Treat “buy now, pay later” services as a loan and personal debt. Do not use these loans for small, frequent or non-essential purchases.
- Make sure you have enough money in your bank account to cover all payment installments – so you’re not likely to overdraw your account. If you cannot afford the product or item within the period allotted for repayment, reconsider the purchase.
Consumers who suspect a scam or an unfair business practice should contact the Ohio Attorney General’s Office at www.OhioProtects.org or 800-282-0515.