Buy-now-pay-later plans don’t sound like a particularly fresh consumer idea, and the emerging digital take on once ubiquitous layaway plans are really just app-based reboots, but its a payment choice that can lead to harsh consequences for the unwary.
A growing number of tech platforms, that include programs from Affirm, Afterpay, Klarna, Sezzle and Zip, are finding success in partnering with retailers to offer portals for issuing credit at time of purchase that allows the consumer to check out, virtually or in person, with their goodies after agreeing to an installment plan. Some charge interest, some don’t, and rescheduling a payment or paying late can also come with charges.
And perhaps the most significant consequence is how easy buy-now-pay-later plans make it to overextend via what is essentially a loan application process that takes only moments to complete.
Buy-now-pay-later providers have carved out a consumer financing niche, using real-time “soft” credit inquiries that don’t pull up credit scores, don’t appear on the applicant’s credit report and, should credit be issued, doesn’t report new debt obligations back to credit agencies. This opens the door for applicants who may not qualify based on their scores, want to avoid maxing out current credit cards or who simply don’t have ample credit history to pass a more in-depth credit assessment.