Gephardt: Are Buy Now, Pay Later Retail Loans Worth It?

SALT LAKE CITY, Utah – With the pandemic pushing more people to shop online, the “buy now, pay later” payment option is becoming increasingly more popular.

But do these retail loans make financial sense for shoppers?

The option allows shoppers to break up their purchases into payments without interest. So what’s there to worry about?

Companies like Affirm, Afterpay, PayPal Credit and Klarma will spread out payments on purchases from shoes to Peloton bikes.

It works like layaway, except you actually get the item before you’re done making payments.

You won’t get zinged for interest, so how are these companies making money?

Ted Rossman, a senior analyst with credicards.com, has the answer.

“The store takes a little bit of a haircut,” he said. “Maybe it’s like 5 or 6%, but the advantage is that they get the money now and that they book a sale.”

There is one catch for shoppers: fees.

“The late fee, though, can start right away,” Rossman said. “They can also ban you from future transactions on the platform.”

Being late can also mean deferred interest and penalties. Plus, you won’t get the same benefits as a credit card.

“So you might be sacrificing rewards,” he said. “You might be missing out on other buyer protections like fraud protection, extended warranties.”

The biggest concern is that the buy now, pay later option often means a soft credit check or no credit check at all. There’s no real solid look into your financial situation to see if you really can afford that $2,000 exercise bike.

“You have to be careful,” Rossman said. “There’s an inherent danger to buying something now that you might not be able to afford with the promise to pay for it later.”

The rise of buy now, pay later hasn’t escaped the attention of the big banks. Many, like Citibank, Chase and American Express, now offer an option to pay off a purchase in installments with no interest.

If you have a problem you can’t solve, give it to Gephardt to try. Call 385-707-6153.