If you shop online this holiday season, you are almost guaranteed to get pitched for buy, now, pay later financing.
Splitting a purchase into four equal payments over a six-week period may seem like a smart move, but it’s designed to get you to spend more.
Annie Millerbernd, personal loans expert at the personal finance website NerdWallet, says breaking a big payment into smaller installments makes it seem like you didn’t spend as much.
“Say you’re online shopping and your cart has $200 worth of stuff in it, and you see this offer to drop it down to, say, $50 today and more $50 installments after that,” she said. “You can feel enticed to go in and add more items to your cart because they made you this offer to basically make the purchase smaller today. And that can inflate the cost of the shopping trip.”
Keep in mind: Most buy now pay later companies charge a late fee, usually $7 or $8 per missed payment.
“And then, say you linked your debit card to it, and you overdraw your bank account, you could see an overdraft fee from your bank,” Millerbernd explained. “You could also be sent to collections depending on the buy now, pay later company, which also has effects on your credit score. So, missing a buy now pay later payment seems low stakes, but it can have high consequences.”
More Info: Buy Now, Pay Later Often a Debt Trap (This story contains a podcast that goes into greater detail about the potential pitfalls of BNPL financing.)
