Payment installment plans, often called “Buy Now Pay Later” (BNPL) programs, can help consumers pay for heftier purchases in smaller, spread-out payments. From concert tickets to high-end products, you’ve most likely seen the option at checkout to pay only a portion of a product’s full price immediately, and pay off the remainder over the span of a few months. As BNPLs become increasingly popular, there are a growing number of payment companies offering this service, including Klarna, Afterpay, Affirm, and Zip, to name a few.
Even though this sort of service can be a benefit to consumers, it is important to know the risks associated with BNPL.
The most important thing to know when using a BNPL service is the exact terms and agreements of your payment plan. At first glance, four payments spaced out over 4 months seems easy enough; however, if you miss a payment, you may get bogged down with late fees and additional interest on what you owe.
Many also argue that BNPLs are predatory in that they encourage irresponsible spending and can trap consumers in a cycle of making multiple payments on purchases that they wouldn’t otherwise. For example, if you make a large purchase with a BNPL, you may find you don’t have enough funds for another purchase you typically make, so you use another BNPL service! Soon, some consumers find they are making multiple monthly payments for different purchases and stretch themselves too thin financially. If this becomes compounded by potential late fees and interest, consumers may find themselves increasingly in debt.
While BNPLs market themselves differently than typical financial products, they are essentially a loan that can have the same impact to your credit and financial health.
As a burgeoning trend, BNPL companies may also not have the same level of security as traditional financial institutions. Some suggest that, while missing payments can impact your credit score, some BNPLs do not conduct traditional credit checks to approve payment plans, instead using other data available to them.
Criminals can takeover existing accounts, or create new ones with stolen identities, leaving unsuspecting victims on the hook for any purchases they make. BNPL companies may not offer the same protections that established financial institutions offer.
Like we mentioned earlier, make sure you do your due diligence before opting into a payment plan. Review all terms and conditions to ensure there are no hidden fees or sky-high interest rates, or lack of fraud support that would leave you vulnerable to criminals. Sometimes, you may find that a credit card or personal loan might better suit your needs instead of a buy now pay later service.
Monitor any BNPL you have to check for fraudulent charges, and protect your account the same you would with any online account that contains sensitive information.
Additionally, even though you only enter your contact details, SSN, and bank/account information to use a BNPL service, some companies collect more data from you than you think. That can include browser history, contacts, messages, or more! While PayPal has been rated highly for having the most privacy controls, many other companies have limited options for consumers.
You can change the privacy settings for specific apps on your smartphone, or make sure you opt-out of data sharing if available.
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