We’ve all been there. You really need to buy a plane ticket or a new pair of shoes, but you don’t have the money right now. Some people will just put it on a credit card and worry about the bill later. But if you don’t have credit or are already in a credit hole, you have another option: It’s called ‘buy now, pay later,’ and it’s becoming trendy.
What is ‘buy now, pay later’? It’s exactly what it sounds like! If you need that new pair of shoes but don’t have the money, you can get them now, pay a percentage of the full price, and pay the rest off in installments—all without a credit check. The catch is that the store doesn’t offer this feature directly, but a handful of fintech companies facilitate ‘buy now, pay later’ transactions. And they’re making a lot of money—so much money that Square (which owns Cash App and is run by Jack Dorsey) is buying industry leader Afterpay for $29 billion.
What sites let you ‘buy now, pay later’?
You’ve probably run into the major players in this industry on your favorite retail sites. They’re called Afterpay, Klarna and Affirm. These companies partner with retailers such as H&M, Sephora, Target and ASOS online or in-store. At checkout, the option pops up for customers to pay in installments. For example, you could pay $20 initially for a $100 purchase, and they wouldn’t even run a credit check. And Afterpay doesn’t charge interest or fees as long as you make all of your scheduled four loan payments on time.
This option became even more popular during the pandemic as online shopping surged. According to Adobe, ‘buy now pay later’ grew by 215% in the first two months of 2021. The concept isn’t even new: Stores have offered layaway for decades, which allows you to put down a deposit to hold an item until you pay it off in full and take it home. Fintech companies only made it a little easier.
Beware of overspending.
Why is ‘buy now, pay later‘ bad? It definitely seems like an easy solution when you’re shopping in between paychecks, but when it comes to money, you have to be careful. Some companies offer interest-free loans, but it also varies from retailer to retailer. Plus, missing a payment typically comes with fees. Not to mention, while one purchase may not make a huge impact, making multiple ‘buy now, pay later’ purchases could add up fast. So, treat this feature the same way you treat any other debt. Just because Klarna commercials are fun and silly doesn’t mean they won’t hurt your wallet if you forget to pay up.
What do you think about Square buying Afterpay? And is ‘buy now, pay later’ a good idea?
