Buy now, pay later service isn’t a slam dunk
Buy now, pay later is a new service available to online shoppers that’s turning traditional layaway on its head.
With BNPL, you don’t have to wait to bring home something you pay for in installments. Instead, a third party offers you a loan at checkout to cover your purchase, in some cases with no interest or additional fees.
More than one-third of U.S. consumers have used such a service at least once, according to research by The Ascent. And BNPL is the fastest-growing e-commerce payment method globally, according to Worldpay, a unit of payments processor FIS.
The most popular spending category for BNPL services is consumer electronics, according to a survey by CouponFollow, a consumer savings engine that markets popular coupons. But these point-of-sale loans are on the increase for everything from furniture to travel. For example, VRBO, the online marketplace for vacation rentals, and travel provider Expedia have partnered with Affirm, one of the largest BNPL services.
The industry is young, and the pandemic has certainly been a catalyst for its growth. Affirm went public in January, and its stock price has more than doubled. BNPL’s market share in North America is expected to triple in the next three years, says Greg Fisher, chief marketing officer at Affirm.
Klarna, whose Super Bowl commercial featured actor Maya Rudolph on a mission to buy a fabulous pair of boots, services more than 15 million customers in the U.S., says David Sykes, head of Klarna US. PayPal recently rolled out several new “pay later” products in the United States, United Kingdom and France.
BNPL services offer a way to cover the cost of something you need right away, says Linda Sherry of Consumer Action. But it’s important to thoroughly vet the service you choose. Keep an eye out for late fees, interest and whether you’ll pay more for the product or service than you would by paying up front.
The services’ interest policies vary. PayPal’s U.S. BNPL service charges no interest on purchases as long as you spend at least $99. Klarna and AfterPay don’t charge interest, either — although, like PayPal’s BNPL service, their payment plans generally have a shorter timeline (typically eight weeks).
Affirm, however, which bills in three-, six- or 12-month installments, charges anywhere from 0% to 30% interest on purchases, depending on your credit. Many of these services check your credit history in order to qualify you for the loan.
Even if the price is the same, breaking up payments can make a big purchase seem cheaper, which can tempt you to overspend. Also bear in mind that if you need to return an item, you might end up waiting longer for a refund than if you had paid in full up front.
With some services, any interest you pay is nonrefundable. And though making BNPL payments on time won’t help you build credit, missing payments could hurt your credit score.