Buy Now, Pay Later (BNPL) services are becoming a popular, more convenient way to pay for purchases, especially online.
Rather than paying for items with a credit card, consumers can opt to pay for them later in installments over a short amount of time.
A new Bankrate survey found that nearly 56% of BNPL users say they have come across at least one problem while using these services.
Experts say it’s easy to trick yourself into thinking it’s only $50 here and there, but those payments still add up.
Remember, it is still debt.
Ted Rossman, Senior Industry Analyst for Bankrate says this concept has exploded in recent years.
“It has kind of become too big to ignore in the payment space. These are rapidly growing companies we’re talking about Affirm, After Pay, Klarna, PayPal has a version of this. Apple has a version of this. Even some of the traditional credit card brands, like American Express and Chase and Citi," said Rossman. “A lot of people are drawn to this installment lending process.”
He said in particular, young people are drawn to it. The recent Bankrate study found younger generations are more likely to use BNPL.
"We found that about four in 10 Americans have tried BNPL. About six in 10 of those have had an issue at some point,” Rossman said.
But while some buyers see this as a way to spread out the monetary impact, Rossman said consumers should still be aware of what they’re getting into and the potential downfalls.
“Overspending is the biggest one, it’s easy to overspend. This is often integrated into the checkout flow in E-commerce websites, you lose sight of how much you’re spending,” explained Rossman. “Oh, it’s not a $200 purchase anymore it’s just four easy payments of 50 bucks.”
In some cases, mental accounting can possibly be tricky for consumers and they overdo it.
Rossman says another frequent problem with BNPLs is delinquent payments.
“These payments are often due every other week, we’re not necessarily used to paying bills every two weeks, things are on a monthly cadence.”
He recommends signing up for auto payments to automatically be drafted from your bank account.
“We also found users who were upset about returns and other disputes,“ explained Rossman. “Credit cards are the gold standard in terms of dispute resolution and rewards.”
It’s important consumers understand the company’s terms and policies before they accept and confirm.
“The terms vary widely from provider to provider and merchant to merchant. Individual circumstances, such as your credit history, play a key role as well.”
BNPL is not as regulated, and for some people that’s a good thing, but it’s best for the consumer to understand the terms and the total cost of ownership, and not be fooled by the bi-weekly or low installments.
“They’re like power tools, they can be really useful or really dangerous and it’s really about how you use them,” said Rossman.
