![]() If it's a bigger-ticket item and the plan charges interest, that additional cost will be baked into each payment and spelled out before you accept the loan. You pay a portion of the bill when you buy and the remaining balance in equal installments over a fixed period. ![]() You answer a few basic questions about yourself, such as your date of birth, email address and phone number, provide a debit or credit card number, and then, voila, you're approved (larger loans might require a credit check). You apply at checkout for credit that covers the amount of your purchase (versus, say, a larger line of credit on a standard credit card). ![]() The same companies often offer both plan types and the process is the same. For larger purchases, payments are usually spread over a longer period, up to 48 months, and you'll probably be charged interest that can run as high as 30 percent, depending on your personal profile and credit history. For items that cost $1,500 or less, the plan typically splits repayment into four equal installments spread across six weeks you won't be charged interest and the loan won't impact your credit record or score. Thinking about taking advantage of the offer to extend payments-for free!-on your next online purchase? Here's what you need to know before you click yes.īuy now, pay later programs fall into one of two broad categories, usually depending on the price of what you're purchasing. The three major credit bureaus also announced changes at the end of last year to better track usage of these programs. Those risks were considered serious enough by the Consumer Financial Protection Bureau that the watchdog agency recently launched an inquiry into the business practices of the five leading BNPL providers. They include late fees that can pile up, possible damage to credit scores, a lack of the traditional oversight that governs other types of loans, and some shoppers being lured into spending more than they can afford. But there are risks too, and they're often not understood by consumers. The appeal is understandable: In addition to the typically free financing, the application process is easy, with barely any credit check involved, and approval is nearly instantaneous. While estimates of use range widely, the consensus suggests that between at least one-third to one-half of Americans have used an extended payment plan at least once and that roughly three-quarters of them are repeat customers.ĭon't be too quick to click yes on an online buy now, pay later offer. In other words, they're everywhere these days. Now the plans have been extended to include some in-store purchases too, and credit-card issuers are getting into the act as well, offering their own versions of installment payment plans. Traditionally offered just for online spending by financial tech companies like Affirm, Klarna and PayPay Credit in addition to Afterpay, the types of BNPL plans available and the companies that provide them has grown sharply. Last year alone, Americans spent $20.8 billion through these services, with purchases overall up 230 percent since the start of 2020, according to a study by Accenture commissioned by Afterpay, one of the leading players in the field. As online shopping has soared during the pandemic, the popularity of these new payment programs, known as buy now, pay later (BNPL) plans, has skyrocketed as well. It sounds like one of those too-good-to-be true propositions: Buy an item online, shell out just a fraction of the price at checkout and pay the remainder in installments over time, typically at no extra cost.
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