Buy Now, Pay Later

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Buy Now, Pay Later (BNPL) is a financing option for online purchases that allows consumers to pay for items in four installments. Companies such as Klarna, Affirm, PayPal, and Apple Pay offer Buy Now, Pay Later loans at the check-out of online retailers, advertising four low payment installments. Because the lenders generally commit soft credit checks and offer interest-free installments within a short period, BNPL is highly targeted toward those who have bad or no credit at all. It disproportionately affects vulnerable consumers, leading to major criticisms of predatory lending.

How it works

When purchasing an item, the customer is contractually obligated to make installment payments on the item being purchased without interest. Plans can be divided into equal parts in which the customer will pay until the item is completely paid off. Payment plan agreements can be quite flexible ranging from weekly, bi-weekly and even monthly depending on the agreement. Missing a payment can incur late fees (which do incur interest if you're unable to pay it), account fund freezes, or in worst case scenarios, being sent to a debt collector which can affect your credit score.

Why it is a problem

Lack of regulation

BNPL's short-term payment plans and lack of immediate interest make it possible for lenders to operate outside the laws and regulations of traditional credit card companies^{[citation needed]}. In most countries, credit is defined by predetermined criteria that these BNPL fintechs purposely avoid, allowing them to act unregulated on mass populations around the world.

Ease of debt

Many credit lenders offer soft credit checks and low interest rates to entice un-creditworthy consumers. While these practices do have some benefit, particularly for financially aware individuals seeking to improve credit, these enticements often bring in consumers who are more vulnerable. Buy Now, Pay Later lenders are especially egregious in advertising to vulnerable consumers, often advertising alongside necessary online purchases such as groceries and even rent and utilities. The lack of gatekeeping from hard credit checks and interest rates means that more consumers are accruing easily avoided debt.

No safeguards

Credit card companies generally report to the major credit bureaus such as Experian, TransUnion, and Equifax. Without reporting consumer information, BNPL lenders avoid common safeguards like spending limits, thus allowing consumers to accrue hundreds or even thousands of dollars in debt that otherwise wouldn't have been possible. This is particularly harmful because consumers tend to believe, and the lenders tend to advertise, BNPL services as a safer option compared to traditional credit cards.

Examples

• Affirm
• Afterpay
• Klarna
• Abunda
• PayPal
• Apple Pay