BOSTON — Anthe Kelley owns a yoga studio in Roslindale and says “buy now, pay later” payment options came in handy when she needed to make several large purchases.
“It was very helpful for me when I needed to get some new equipment. I could purchase the equipment I needed and just pay in chunks,” Kelley said. “It kind of reminds me of old school layaway.”
Buy now, pay later services have exploded in popularity, especially among young shoppers who view it as a cheap form of financing. But extended payment plans can also trip up consumers. More than half of buy now, pay later shoppers have experienced at least one problem with the services, according to a new report from the consumer financial services company Bankrate.
“Buy now, pay later has gotten a lot more popular in recent years,” Bankrate Senior Industry Analyst Ted Rossman said. “These companies try to position themselves as an alternative to credit cards.”
Bankrate surveyed more than 2,200 consumers in March and found 56 percent of the shoppers who had used buy now, pay later said they experienced at least one problem, including overspending, missing a payment and difficulty returning a purchase or obtaining a refund.
“Buy now, pay later often doesn’t have the same kind of dispute-resolution policy as a credit card, and sometimes people run into trouble if there’s a problem with the merchandise or if they want to return something,” Rossman said. “There’s this kind of middleman you have to deal with.”
CONSIDER THE TOTAL COST
People can easily trick themselves into overspending, Rossman says, because a $200 or $300 purchase may not feel like that much if it’s spread out over four payments. It’s important to consider the total cost when you make your purchase.
“You may have multiple [payment] plans with multiple providers running at the same time.” Rossman said. “That’s where $50 here and $50 there can really add up in a hurry.”
Rossman believes the best way to use buy now, pay later is to split up a large one-time expense from the rest of your finances.
“Maybe it is some exercise equipment, a couch or a TV, especially if you can get low or no interest financing,” Rossman said.
PAY ATTENTION TO SPECIFIC TERMS
Buy now, pay later plans can charge anywhere from zero to 36 percent APR, a huge range. Rossman said the interest rates can depend on the payment provider, the retailer, your credit score or your income.
“I would really advise people to look at their specific terms because they vary a lot,” Rossman said. “Sometimes it’s four interest-free payments over six weeks, but sometimes it’s much longer with a hefty interest rate.”
Also, pay close attention to return and refund policies in case you’re not happy with your purchase.
SIGN UP FOR AUTO PAYMENT
Most of us are accustomed to paying credit cards and other bills once a month. Many buy now, pay later payments are due every other week, which can be easy to overlook. Rossman recommends setting safeguards in place so you don’t miss a payment.
“A lot of times we’re used to monthly payments, but buy now, pay later, is often due every other week. So maybe you should sign yourself up for auto-payment or set some really good calendar reminders so you’re not forgetting and incurring late fees, " Rossman said.
This is a developing story. Check back for updates as more information becomes available.
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