Experts warn hidden risks of Buy Now, Pay Later

Demand for "Buy Now Pay Later" options is growing at a time when Americans are contending with persisting inflation, high interest rates and student loan payments. 

And while it can help ease cash flow issues, financial experts tell FOX Business that there are hidden risks when shoppers rely on the service too much, especially if they are not focused on their budget. 

In fact, while most "Buy Now Pay Later " options are advertised as interest-free installments that can be paid over the course of a few weeks or months, consumers can still get hit with late fees if they don't have the funds to cover the installments. 


Over time, if a consumer keeps missing payments, they could very easily be handed over to a debt collector, Martha Callahan, certified financial planner at Maryland-based FBB Capital Partners, told FOX Business. 

These loans have proven to be a tempting option for buyers looking to stretch their budgets in recent weeks. According to recent data from Adobe, online spending during Cyber Week was driven in large part by "Buy Now Pay Later" options.

Usage of such services hit an all-time high on Cyber Monday, accounting for $940 million, an increase of 42.5% year over year. Cart sizes also rose 11% annually as shoppers leaned on the service. 

Since Nov. 1, the "Buy Now Pay Later" services accounted for $8.3 billion in total spending, up 17% year over year and November 2023 is already on track to mark the biggest month on record for the payment method.  

However, it comes at a time when Americans are already facing a mountain of credit card debt stacking up, with balances totaling over $1 trillion. 

"It's similar to using a credit card where you make the purchase now, but when it comes time to pay that debt, if you don't have the cash on hand to make the payment. You're just digging yourself into a deeper financial hole," Callahan said.  


That can be really hard and challenging to recover from, Callahan warned. In turn, it could also hinder someone's credit. 

"I think it can be deceiving at the time of purchase where you feel like I can afford that. I can afford these four payments," she said. "But the more you do it, the more those payments are stacking up in the future." 

Callahan and Ted Anders, Head of Payment Solutions at Affinity Federal Credit Union, aren't telling consumers to avoid the payment option. But consumers need to stick to their budget, especially since there are not as many checks and balances in place like they are with credit cards. 


"Like other loans, credit cards, those types of things go through a full approval process," Anders said, adding that financial institutions will be able to look at someone's credit and make a determination of how much someone can rightfully manage based on income and other factors.

"Those options really don't happen with buy now pay later," Anders said. "The lending institution in this case doesn't have checks and balances in place to say, you know what, I should explain to you, you're too high of a risk." 

Consumers should be wary in particular if they are using the payment plan for discretionary items, Callahan also warned. 

"I would really be wary of using the buy now pay later for discretionary items because if you're having to use it, it might be an indication that you aren't able to afford it," Callahan said. "I think a better solution would be to save the money for the purchase and then buy it outright." 

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