Buy now, pay later options attracting shoppers

Short-term loans just a click away at checkout come with perks, potential downsides

SAN ANTONIO – Say you’re shopping online when a killer red handbag catches your eye, and so does the spendy price tag.

But right there at checkout, there is an option that lets you buy know and pay later, in four interest-free installments.

It’s a sort of modern-day, reverse layaway concept that’s booming in the pandemic economy.

“There’s no question this is a perfect time for a coming-out party because online shopping has been growing so quickly anyway,” said Matt Schulz, chief credit analyst at LendingTree.

From Walmart to and Old Navy to Neiman Marcus and Jimmy Choo, retailers are hooking up with companies that offer short-term loans at the point of sale. Afterpay, Klarna, Affirm, Quadpay, and Sezzle are some of the names consumers may see.

“Part of the allure of a lot of them is they don’t require a credit check to get the loan, or they might just do a soft credit check,” Schulz said.

Many of them offer zero interest loans. Transparency and predictability is another plus, according to Schulz, because shoppers can see exactly how much they need to pay and when.

There are also risks.

“There are definitely some downsides to these,” he said. “One of the biggest is if you are late, you will run into late fees.” With some, you could also run into interest as high as 30% depending on the purchase.

And, most do not help you build credit.

A key thing to know about these payment options, according to Schulz, is that they are not all the same. For instance, some require payment once a month, but others require payment every two weeks. So, it’s important to read and understand exactly what you are signing up for.

Another potential pitfall is the temptation to spend more than you can really afford. Even a short-term loan is still debt.

The point-of-sale loan options have gained momentum in recent months as more people shop online and look for ways to stretch payments. They can make a bigger expense such as furniture or electronics easier to pay over a short period of time.

That killer red handbag may even be more easily attainable paying four $67 payments over six weeks as opposed to $268 all at once. That’s if you pay in full and on time.


About the Authors: