![]() ![]() "Right now, buy now, pay later can't generally help you build credit, but it can hurt," said Saunders.Įlyse Hicks, consumer policy counsel at Americans for Financial Reform, a progressive nonprofit, said people may not consider seriously enough whether they'll still be able to afford payments down the road. Payments you make on time aren't reported to credit rating agencies, but missed payments are. That means more companies may let you buy more items, even if you can't afford them, because the lenders don't know how many loans you have set up with other companies. "Otherwise, it's the worst of both worlds." What are the other risks?īecause there's no centralized reporting of buy now, pay later purchases, those debts won't necessarily appear on your credit profile with major credit rating agencies. "Use the credit card directly and get those protections," she said. If you do, you lose the protections you get from using the credit card while also opening yourself to owing interest to the card company. Lauren Saunders, associate director at the National Consumer Law Center, advises borrowers to avoid linking a credit card to buy now, pay later apps whenever possible. Companies can offer protections, but they don't have to. That means you could find it more difficult to settle disputes with merchants, return items, or get your money back in cases of fraud. In the U.S., buy now, pay later services are not currently covered by the Truth in Lending Act, which regulates credit cards and other types of loans (those paid back in more than four installments). If you miss multiple payments, you may be shut out from using the service in the future, and the delinquency could hurt your credit score. These can run as high as $34 plus interest. The services generally don't charge you more than you would have paid up front, meaning there's technically no interest, so long as you make the payments on time.īut if you pay late, you may be subject to a flat fee or a fee calculated as a percentage of the total you owe. Scheduled payments are then automatically deducted from your account or charged to your card. Some companies, such as Klarna and Afterpay, do soft credit checks, which aren't reported to credit bureaus, before approving borrowers. How does buy now, pay later work?īranded as "interest-free loans," buy now, pay later services require you to download an app, link a bank account or debit or credit card, and sign up to pay in weekly or monthly installments. Here's what you should know about BNPL plans before you agree to them. Because the loans break a purchase into smaller installments, it can tempt shoppers to buy bigger-ticket items. ![]() And shoppers who use BNPL loans typically spend 10% to 40% more when paying with these loans than they would with a credit card, according to new research from Harvard Business School researchers. ![]()
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