Buy now, pay later apps are an increasingly popular way to finance purchases.
Companies like Affirm, AfterPay and Klarna let you split the cost of everyday purchases — from running shoes to groceries — into several installment payments.
Pay-in-four loans are the most common model. You’re required to make a small down payment, usually 25%, then enroll in auto-pay with a credit or debit card for the remaining three payments, often spread out two weeks apart.
It may seem like an attractive alternative to credit cards since pay-in-four plans don’t charge interest.
Pretty tempting, right? That’s the whole idea.
But buy now, pay later isn’t free money. It’s a short-term loan, and the business model is sounding alarms from regulators and consumer protection advocates.
“BNPL isn’t the life preserver it pretends to be to keep consumers from drowning,” said Ed Mierzwinski, senior director of the federal consumer program at U.S. PIRG, a consumer advocacy group. “It’s a come-on to spend more.”
Here are seven pitfalls to keep in mind with buy now, pay later services, along with tips to avoid a debt trap.
7 Dangers of Buy Now, Pay Later
It may be convenient to delay paying off a purchase up front, but be wary of these risks that come with using buy now, pay later services.
1. Buy Now, Pay Later Isn’t Building Your Credit — But It Could Hurt Your Credit
Applying for a buy now, pay later service won’t hurt your credit score because these companies
