Buy Now, Pay Later Layaway

Buy Now, Pay Later, or BNPL, could be described as a hybrid between credit and layaway. Rather than the purchased items being kept at the retail store until the purchase is paid off, buyers typically get the product immediately, and commit to a set of payments that are typically made online or via an app rather than at the store, or via auto-debit.

Afterpay, Quadpay, Sezzle, Affirm, Zip, and Klarna are among these companies. PayPal, too, offers a buy-now-pay-later feature. Four installments are common, and there may be no interest, or it could be as high as 30 percent. A setup or service fee may or may not be charged. Late fees are common.

The trend started in Australia, the United Kingdom, and other parts of Europe where credit card debt is not as prevalent as in the U.S. Flexibility is a top selling point of BNPL plans.

These options grew in popularity during the coronavirus pandemic, likely due to online shopping as well as financial pressures. And consumer interest is only growing. Adobe Analytics reported a 20 percent increase in BNPL platform usage on Cyber Monday 2021 versus 2020, and a 466% percent increase over 2019 holiday shopping. BNPL is especially popular with Millennials and Gen Z along with lower-income Americans, according to a SurveyMonkey study.

Even brick-and-mortar stores have rolled out BNPL options due to the overhead involved with storing items and managing layaway payments. Digital layaway is another term that’s being used for buying now and paying later.

There can be some pitfalls and things to be aware of when opting for this type of payment option. In fact, in late 2021, the U.S. Consumer Financial Protection Bureau announced that it will investigate, ordering Affirm, Klarna, Afterpay, Zip, and PayPal to respond to questions about business practices. The number and amount of purchases, autopay, and credit reports are among the details sought by the financial regulator.

According to a Dec. 21 personal finance column in the Washington Post, the CFPB became “uneasy” with the ease of the payment plans as well as a possibly related uptick in impulse purchases. “Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists, where the consumer gets the product immediately but gets the debt immediately, too,” CFPB Director Rohit Chopra told the Post.

Some of the BNPL companies put out statements insisting that they are providing a needed service that’s an alternative to using credit cards, and that they welcome the scrutiny.

A common setup is to pay 25 percent down, and then three installments over two weeks. Often, the service will seek to connect to your bank account to ensure prompt payments. If a payment is missed, the BNPL company may report you to a credit bureau, negatively impacting your credit rating. (One of the positives of using a credit card, especially if you pay it off every month and don’t carry a balance, is that it helps build credit.)

A SurveyMonkey survey poll found 1 in 5 consumers to have used a BNPL service in the past year, and most commonly for tech, furniture, and clothing purchases. However, 1 in 6 buyers experienced regret for reasons such as high interest rates or unnecessary or unaffordable purchases.

Regardless, buy now, pay later options continue to grow. Affirm has partnered with Amazon as well as Walmart, Peloton, and Wayfair, charging interest in some cases. Credit card companies such as Mastercard are getting into the game. You’ll also find BNPL options at Target, Ulta, Sephora, Best Buy, Macy’s, Etsy, American Eagle, Abercrombie & Fitch, and many other retailers.

As with any purchase, the best move is often to simply buy what you can afford. Avoid impulse purchases, don’t spend more than you would if paying with cash, and if you do decide to spread out payments over time, be mindful of the total amount due and how it fits with your overall budget. The last thing you want is buyer’s remorse along with debt.

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