Using buy now, pay later could come with financial risks, experts say

Buy now, pay later. It’s a payment option that is gaining popularity, with major platforms and some retailers offering the option. It allows you to avoid using credit cards, purchase something you want and pay in a few installments with no interest. But there could be a big financial downside for some consumers.

A recent survey by LendingTree found that 41% of Americans who use buy now pay later (BNPL) options made at least one late payment in the last year.

Emily Ratay, a 33-year-old Monroeville resident, chose the payment plan because the $250 price tag for a heavy-duty winter coat was steep for her budget. She said the option can feel like a helpful choice for people working with limited funds. “Maybe it feels like free money where it’s not really your problem right now,” Ratay said of the installment process.

These services, offered by platforms like Klarna, Affirm and PayPal, allow consumers to opt in to an installment plan at checkout. Thomas Nitzsche, a debt educator with the non-profit Money Management International, explained that users are essentially taking out microloans when they choose to split a purchase into four payments. Nitzsche warned that there are consequences for missing these scheduled installments.

“The catch there obviously is if you start to miss a payment, there can be fees and interest that are assessed at that point,” Nitzsche said. “And it could show up on your credit report if you’re more than 30 days past due.” Nitzsche described the ease of using these plans as a potentially dangerous situation if consumers are not paying close attention to their finances.

Consumer experts recommend that shoppers limit themselves to one or two BNPL loans at a time to ensure they can manage the different due dates. Research shows that consumers who carry more than four active installment loans at once are twice as likely to miss a payment. Limiting the number of loans makes it easier for users to keep track of their various payment plans.

Ratay has used these financial tools with caution because of her previous experience with debt. Two years ago, she carried $13,000 in credit card debt. She said she now only uses installment options when she is certain she can pay the loan back on time. Experts also advise consumers never to pay off a Buy Now, Pay Later loan using a credit card, as this can lead to further interest and deeper debt.

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