Buy Now, Pay Later surging amid holiday spending

CHARLOTTE — As you’re shopping online, you may have noticed more stores are offering Buy Now, Pay Later options.

These services allow you to pay off major purchases over an extended amount of time. Many companies divide your total purchase into four installments that are due every two weeks.

“This appeals to people who maybe don’t have a credit card, or even those who do. Maybe you have credit card debt at 20 or 25% interest and you’re wary of adding to it and Buy Now, Pay Later feels like a more responsible form of financing,” said Ted Rossman, senior industry analyst at Bankrate.

Ted Rossman at Bankrate said the use of Buy Now, Pay Later options surged during the pandemic and hasn’t stopped.

According to Adobe Analytics, these services drove $940 million in online spending on Cyber Monday alone.

But Rossman cautions it can also lead to overspending.

“It’s almost like an infomercial, it’s like, oh, four easy payments of 50 bucks, you don’t realize that that was $200 and that it’s due pretty quickly,” said Rossman. “And if you have multiple payments running with multiple providers, it can get confusing and expensive.”

This week, Ohio Senator Sherrod Brown and other Democrats sent a letter to federal regulators urging them to continue monitoring these products. They’re worried about debt becoming unmanageable.

“You make a mistake and you get socked with fees and interest you didn’t know was coming,” said Senator Brown (D-Ohio). “In any financial transaction, the companies need to let people know what the fees are of any kind and then people can make that decision do I still buy this, do I still get this service if you’re going to have some other fee that I didn’t think of.”

We reached out to Affirm, AfterPay, PayPal, and Zip for a comment and only heard back from Affirm.

In a statement, an Affirm spokesperson said, “We underwrite every transaction individually and only approve consumers for what we believe they are willing and able to repay.” The company adds that customers see the full cost of a purchase including any interest up front.

Additionally, Rossman said some buy now pay later companies don’t report to the credit bureaus.

“They don’t know like if you’ve taken out three of these in the past six months and defaulted on two of them. That’s largely unknown,” said Rossman.

Rossman adds that responsible usage often won’t get you any closer to a good credit score either if these plans are not reported.

Below is the full statement from Affirm:

• We underwrite every transaction individually and only approve consumers for what we believe they are willing and able to repay.

• Because we do not charge late fees or other hidden charges, our success is aligned with consumers successfully managing their finances and responsibly extending access to credit.

• With Affirm, consumers see the total cost of a purchase up front, including any interest, before deciding whether to transact, and they are not charged more than what they agree to at checkout.

• Because we underwrite every transaction individually, we are able to responsibly extend access to credit to more people while driving positive credit outcomes. This is despite having a higher proportion of “non-prime” users.

• We are also subject to extensive regulation and oversight, both directly and indirectly, by way of our partnership with our originating bank partners, under federal law and the laws of the states and provinces in which we operate.

• We have long been vocal in our support of efforts that promote greater choice and transparency for consumers, including thoughtful regulation, which aligns with our mission to deliver honest financial products that improve lives.

• The CFPB already serves as one of our regulators today, and we expect them to continue reviewing our business and industry. We will continue engaging with the CFPB as we do with all of our regulators.

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