{"id":15268,"date":"2023-05-29T11:19:28","date_gmt":"2023-05-29T15:19:28","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/dont-get-stung-by-buy-now-pay-later-services-it-is-kind-of-a-recipe-for-disaster-if-not-managed-carefully\/"},"modified":"2023-05-29T11:19:28","modified_gmt":"2023-05-29T15:19:28","slug":"dont-get-stung-by-buy-now-pay-later-services-it-is-kind-of-a-recipe-for-disaster-if-not-managed-carefully","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=15268","title":{"rendered":"Don\u2019t get stung by buy now, pay later services: \u2018It is kind of a recipe for disaster if not managed carefully\u2019"},"content":{"rendered":"

Although they are marketed as having no fees and no interest, some buy now, pay later products do include such charges \u2014 but it can be hard for consumers to know what they are getting into.<\/p>\n

That\u2019s according to new research by Consumer Reports, which looked at major companies\u2019 lending, privacy and consumer-protection policies. The study found that providers of buy now, pay later services were not always clear about disclosing late fees and interest, and the authors noted that it can confusing for borrowers to determine which ones have such charges and which don\u2019t.\u00a0<\/p>\n

\n

\u201cConsumers may not fully understand their obligations,\u201d the authors wrote. \u201cA consumer could, for example, intend to choose a zero interest pay-in-four loan option, but decide that six payments is more suitable, not realizing that the six-payment plan is subject to interest.\u201d<\/p>\n

Buy now, pay later \u2014 referred to in the payments industry as BNPL \u2014 is a\u00a0new spin on the concept of layaway. It allows consumers to receive their purchase immediately but to divide their payment into installments paid over a longer period with little or no interest \u2014 as long as they make the payments on time. Common BNPL options include Afterpay, Klarna, Affirm <\/strong>
\n AFRM,
\n +2.70%<\/bg-quote>
\n and PayPal
\n PYPL,
\n +1.43%<\/bg-quote>.<\/span>\n <\/p>\n

Typically, BNPL payments span six weeks, but some providers also offer longer-loan products for bigger dollar amounts.<\/p>\n

Also read:<\/strong> More \u2018buy now pay later\u2019 users are seeing their credit scores drop after they miss payments. But are these two things really connected?<\/p>\n

It may be difficult for consumers to keep track of the total amounts they owe BNPL lenders, Delicia Hand, director of financial fairness advocacy at Consumer Reports, told MarketWatch.<\/p>\n

\u201cThis is a transaction-by-transaction payment and credit product, so ostensibly, I could be using five or six buy now pay later products or 50 different transactions. That is a significant shift to how consumers are obtaining something that is creditlike and using it,\u201d Hand said.<\/p>\n

\u201cIt is kind of a recipe for disaster if not managed carefully,\u201d she added, noting that the transaction-by-transaction nature of buy now, pay later may complicate things for consumers who are already juggling multiple bank and credit-card accounts.\u00a0<\/p>\n

Almost all BNPL providers have more than one product offering: a short-term one that can be paid over several weeks and a longer-term one that can be paid over several months. The Consumers Reports authors said the distinction between short-term plans (most common are the \u201cpay-in-four\u201d plans that spread out four payments over six weeks) and the longer-term plans (such as monthly payment plans that can stretch out over six months or longer) can be confusing for consumers, even when laid out side by side.\u00a0<\/p>\n

\u201cIt also is not always apparent the exact terms of the BNPL and can seem tricky as far as when exactly you can be charged interest or a fee and how that will work,\u201d one participant in the report said.\u00a0\u201cIt would have been nice if the exact details were more clearly stated as you go through the registration process because to me, it felt like they were keeping their cards close to their hand and not making it obvious to try and take advantage of someone not knowing exactly what they were getting into.\u201d\u00a0<\/p>\n

Here are details on popular plans for some BPNL companies.<\/p>\n

PayPal<\/h2>\n

PayPal\u2019s monthly payments plan can stretch over six, 12 or 24 months, with an APR ranging from 9.99% to 29.99%, depending partly on a person\u2019s credit history and their transaction history with PayPal. The borrower is able to see three different APRs based on varying loan lengths when they check out. Some merchants might offer a 0% promotional APR, according to information provided by PayPal.\u00a0<\/p>\n

Affirm<\/h2>\n

Affirm\u2019s monthly product also charges interest, with APRs that range \u2014 based on the applicant\u2019s credit \u2014 from 0% to 36%, depending on the amount and length of the loan. The monthly payment plan can stretch to 60 months. An Affirm spokesperson said the company makes sure its pay-over-time process doesn\u2019t have any late or hidden fees other than the ones consumers see at checkout.\u00a0<\/p>\n

\u201cThis includes underwriting every transaction before extending credit, giving consumers control over their privacy choices and providing consistent and transparent disclosures at checkout,\u201d the spokesperson told MarketWatch by email.<\/p>\n

Klarna<\/h2>\n

Klarna offers similar options, with a pay-in-four plan, a plan that\u2019s interest free and is paid within 30 days, and longer financing options of up to 24 months that charge interest, with APRs ranging from 0 to 29.99%.\u00a0<\/p>\n

Klarna\u2019s pay-in-four product does not charge any interest but will charge a late fee of up to $7 if a customer is 10 days late in making a payment, according to its website. The borrower\u2019s financial institution might also charge interest or fees. Klarna immediately restricts the use of its services to users who miss a payment.\u00a0<\/p>\n

Sezzle<\/h2>\n

Some recently added long-term financing options weren\u2019t included in Consumer Report\u2019s investigation. Those include Afterpay\u2019s options of up to 12 months and Sezzle\u2019s long-term monthly plans for larger purchases. Sezzle told MarketWatch that it also offers pay-in-full and pay-in-two products, which operate similarly to its pay-in-four product, which the report did include.\u00a0\u00a0<\/p>\n

If a customer is late in making an installment payment, Sezzle provides a grace period before restricting a user from making additional purchases, the company told MarketWatch. A user who misses a payment must pay a reactivation fee to use Sezzle in the future, Consumer Reports noted.\u00a0<\/p>\n

Afterpay<\/h2>\n

Afterpay charges a fixed late fee for its pay-in-four option. The late fees \u201cdon\u2019t seem to make up a significant portion of its revenue,\u201d the Consumer Reports team found. <\/p>\n

Afterpay didn\u2019t respond to a request for comment from MarketWatch.<\/p>\n

Zilch<\/h2>\n

Zilch offers a pay-in-four option with no late or hidden fees, and it also has a pay-it-all-now option that gives customers 2% cash back. Both types of payments need to go through Zilch\u2019s virtual card. Online payments made using the company\u2019s Mastercard could incur fees, Consumer Reports authors noted, as its \u201cbusiness model is unclear.\u201d<\/p>\n

The commission Zilch gets from merchants when a consumer makes a purchase is passed along to consumers, and spokesperson for Zilch told MarketWatch that although the model is unique, there is \u201cnothing unclear about it.\u201d <\/p>\n

\u201cWe pass a share of this commission on to our customers in the form of free credit, savings, deals and discounts,\u201d the spokesperson said in an email.\u00a0<\/p>\n

Perpay<\/h2>\n

With Perpay, payments come directly out of a user\u2019s paycheck. The company charges both late fees and interest, according to Consumer Reports, although Perpay says on its website that it will not charge \u201cany additional fees as a result of missed or late payments.\u201d Perpay also offers a digital card. <\/p>\n

Perpay did not respond to a request for comment from MarketWatch.<\/p>\n

Zip<\/h2>\n

Zip only offers one payment option, a pay-in-four plan. If a user does not pay their total minimum payment in full by the deadline, the company will charge a late fee of up to $7. It will also charge interest.\u00a0<\/p>\n

Zip did not respond to a request for comment from MarketWatch.<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Although they are marketed as having no fees and no interest, some buy now, pay later products do include such charges \u2014 but it can be hard for consumers to know what they are getting into. That\u2019s according to new research by Consumer Reports, which looked at major companies\u2019 lending, privacy and consumer-protection policies. 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