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Expert explains pros and cons of buy now and pay later options

Posted at 1:32 PM, Dec 08, 2020

New payment options are popping up in your online shopping cart.

There's been an explosion of retailers, including Amazon and Target, adding buy now, pay later options.

“In general, I'm not a huge fan of these services really, because I'm worried about any sort of consumer debt,” said Ted Rossman, a financial expert at Bankrate. “And if you don't really have the money to pay for it today, but you think you'll have it in six weeks, that's a slippery slope.”

Rossman says point-of-sale apps have seen triple digit growth over the holiday season.

They typically require a payment up front and a few more payments spread out over six weeks or so. If you pay on time, usually there's no interest or fees.

Rossman says research has found that almost half of buy now, pay later customers have paid late at some point, mainly because they were disorganized.

Stores like them for several reasons, including because they tend to get people to spend more.

“They also like the potential loyalty and big data play that they can actually learn a lot about their customers, and they work very closely with a lot of these services,” said Rossman.

Most buy now, pay later lenders typically do a soft credit check. They won't typically help you build credit, but they could hurt your credit if you pay late because they will report that.

“I just think that's a little bit short sighted, because if you use a credit card and are paying full, you avoid interest, but you get better promotions, you get rewards, you get better buyer protections,” said Rossman.

Rossman says these options are appealing even to people who have credit, because of their predictability.

He thinks we will see more of these with retailers not being able to push store credit cards as much with fewer in person shoppers.