Shopping? Buy now, pay later
Easy interest-free installment options gaining in popularity
That $128 pair of jeans can now be had for just four payments of $32. Dropping $100 on cosmetics seems less indulgent when the transaction is broken up into $25 payments. Even a pricey Dyson vacuum can be rationalized when purchased in $125 installments.
And retailers from Amazon to Walmart to your neighborhood boutique are buying in, too.
The option to buy now and pay later has soared in popularity, accelerating last year as consumers bought almost everything online at the start of the pandemic. But the little buttons under those Lululemon leggings or that new TV that suggest spreading your purchase over six weeks or more — often at no cost — are expected to change spending habits in lasting ways.
“I think of it as a credit card, without interest,” said Jenna Kellett, 27, a personal assistant in Dublin, Ohio, who was enough of a fan of one of the leading services, Afterpay,
that she became a moderator on a Facebook group where members track new features and follow participating retailers.
If you haven’t encountered a pay-later option before, you will soon.
One major provider, Affirm, announced a deal last week to offer its service on Amazon, the nation’s largest retailer. And Square, the payments firm run by Twitter CEO Jack Dorsey, agreed in August to acquire Afterpay for $29 billion, a deal that will open installment payments to millions of small business that process sales through Square’s app.
Afterpay and Affirm — along with competitors such as Sezzle, Klarna and Zip — are only beginning to push into territory long dominated by credit cards, which accounted for 30.4% of U.S. online sales last year. That’s far more than the 1.7% from pay-later services. But their share is expected to nearly triple to 4.8% of sales — or $79.7 billion — by 2024, according to Worldpay, a payment processing firm.
The idea is straightforward: The purchase price is usually split into four interest-free installments, with the first payment generally due at checkout. There are generally no finance charges, or additional fees if you pay on time, although some services may charge interest to some consumers using certain payment products.
Pay-later services usually charge late fees for missed payments, starting around $7 each and sometimes capped at 25% of the total spent. And although several providers say they don’t report payment behavior or outstanding debts to the credit bureaus, serious delinquencies may show up eventually.
Kimberly Williams, an avid user of several services, said she would only recommend them to people who are financially fastidious.
“You cannot use these types of plans and not be fully in sync with your finances, how the plans work and what you can afford,” said Williams, 42, a health care research site manager.
Williams previously worked as a wardrobe stylist and has a side business designing clothes that are manufactured in Lagos, Nigeria. She dedicates a portion of her monthly budget to clothing purchases that she often resells.
“The rewards, the benefits, the increase of availability to spend — it comes at you quick,” she said. “It becomes more and more tempting.”