7 On your side: “Buy now, pay later” loans are popular, but do they make sense?

NEW YORK (WABC) — Buy ​​now, pay later, or BNPL, loans have become incredibly popular, up 230% in the past two years.

These are loans that are usually interest-free and allow you to make a purchase and pay it off in four or five installments.

Sounds good, right?

Well, before you reach the plastic, pump the brakes. 7 On Your Side’s Nina Pineda has the lowdown on these loans.

“Buy now, pay later, lending has kind of taken the world by storm,” said Matt Schulz, chief credit analyst at Lending Tree. “They’re everywhere. You can’t go to an online retailer without seeing them.”

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Schulz says their research at Lending Tree showed a huge increase in such loans during the pandemic, as shoppers were lured by offers to split payments into small chunks with a few clicks while checking shopping carts online.

“Unlike a credit card, which has interest rates that you don’t know exactly how much you’re going to pay in the end,” he said. “You know exactly how much you’ll pay for a purchase now, pay a loan later, and when that loan will end.”

Klarna, Afterpay and PayPal have paved the way for BNPLs, with Apple joining the trend offering consumers a new way to pay. Recently, investment in business-to-business BNPLs has taken off as rising costs force businesses big and small to look for ways to stay afloat.

For those of us looking to fund everything from designer duds to a new speaker system, it’s easy to qualify.

There are no hard credit applications to apply, and typically you pay it back in four equal installments every two weeks.

“That’s why everybody likes them, because they’re interest-free and they’re predictable, because they’re installment loans,” Schulz said. “But the thing is, they’re really easy to get, and that really makes it easier to overspend.”

Matt says a BNPL is great for beginners who don’t have a credit history, but not for those of us who don’t pay our bills on time.

The downsides are that it’s too easy to get into deep debt, be caught off guard by frequent payments, rack up late fees, and not understand return policies, which can make repayments difficult. .

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“It’s a bit of a Wild West situation going on there,” Schulz said. “So it’s important to look at the fine print with any financial transaction, but especially with these.”

Remember, just because someone is willing to give you these loans doesn’t mean you have to accept them.

You can be in a lot of trouble if you start piling them on top of each other because while there’s no thorough credit check to receive them, you better believe that if you miss a payment , they will affect your credit score.

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