With all of the online shopping we’ve done in the last year, you’ve probably seen the option to “buy now, pay later” pop up at checkout. Over the last few months, companies like Affirm, Afterpay, and Klarna have gradually been building steam. How does it work? A small ad from one of these companies will offer a payment plan for the item you’re about to splurge on, promising no interest and an easy path to paying off the price of the purchase in smaller increments. Maybe their offers made you pause for a second and think about taking the plunge — I was right there with you. After all, making four payments of $25 makes those $100 boots I want seem all the more affordable… But are these companies really offering a money-saving option? Nope. And it might even cost you more in the long run. How? A recent Reuters/Credit Karma survey showed that nearly 40% of consumers in the US who had given these companies a go had missed at least one payment, resulting in fees, and nearly three-quarters of those saw their credit score take a hit as a result.
Here’s a quick explainer from our own Jean Chatzky:
Buy now, pay later companies are like layaway, but in reverse. Here’s how a small purchase works: You buy your sweater. You get your sweater. And then your debit card is charged for your sweater every two weeks over the next 6 to 8 weeks. Who is paying for this? The merchant. What happens in the background is that the lender pays the store for your sweater at the time you make the purchase. For this, the lender (say, Klarna) charges the lender a small flat fee, plus 3-6% of your purchase. Then it’s Klarna hitting your debit card until the purchase is paid off. There’s no hard credit inquiry (thus no impact to your credit) only an instantaneous soft one from Klarna. And no cost unless you miss a payment, in which case you’ll pay a fee.
These platforms are so new, and since I’ve never used them before, I headed to the private HerMoney Facebook Group to see if any of the lovely ladies in our community had real life experiences and opinions to share. Here’s what they had to say.
Izabella W. used Klarna in November to purchase some big ticket furniture items and was approved for a 12 month payment term at 9.99%. She ended up making 3 purchases, each around $1200. “I do like their app, it’s easy to see your purchases and upcoming payments. They have also emailed and texted me about the upcoming payment due, I signed up for the automated payment so they just pulled the money out of my account. I have already paid the entire balance off, but I was glad to have that choice at check out,” she says.
Kayleigh G. agrees and said that she had a positive experience with Klarna’s pay in 4 and ghost cards, even calling it “a great way to budget.”
Carla R. is our buy now pay later queen. She writes, “I’ve used Klarna, Affirm, Amazon and PayPal flexible payments. I like these services because there is no interest, payments are automatically deducted and there was no impact to my credit.” Seems simple enough.
But, of course, we have other members who are more wary of this new way to pay.
Loli M. says “thanks, but no thanks” and sees this option as a slippery slope.
Cynthia H. offers some advice: “if you can’t afford it, don’t buy it.” She believes that these tools to help “impulse buyers” can be dangerous.
Lauren K. agrees that this could be dangerous for the less financially responsible shoppers and calls these softwares “totally bizarre.” She says that she sees it everywhere, though, both on luxury sites and everyday storefronts.
Kari E. has been seeing these everywhere, too. She was “surprised how even on Sephora’s website they are offering payment plans now – for things that are way less than a hundred dollars,” she says. “It feels very predatory and I’m not a fan. I can see large purchases being split into payments, but not an eyeliner,” she adds.
What do you think? Have you used one of these apps, or want to weigh in on the conversation? Tweet us @HerMoneyMedia to share your thoughts, or jump into our HerMoney Facebook Group for more great debates like this one.
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