SAN ANTONIO — Inflation has caused many Americans to tighten their spending belt, causing buy now and pay later programs to become more popular. But, there are plenty of pitfalls.
Buy Now Pay Later programs are short-term installment loans often without interest. They are most popular among Gen Zers, parents with young children, millennials and men.
"Inflation is driving people towards buy now, pay later loans because they can be a really good option when you use them wisely. To help extend your budget a little bit," said Matt Schulz, the Chief Credit Analyst at Lending Tree and author of "Ask Questions, Save Money, Make More".
Some of the pros of Buy Now Pay Later...You can split up payments. If you make payments in time some have no interest. And you can get financing without a credit check.
"A buy now pay later loan typically is an interest free loan and has a very speedy approval process. So consumers can use those loans to buy high cost items in the retail space, education, health care, even insurance," said Sylvia Bolos, a partner at Consumer Attorneys.
Some of the cons of Buy Now Pay Later could include massive fees and interest. Possible overdrafts if you aren't careful. It is easy to overextend finances. You can miss out on credit card rewards. Returns can be very difficult.
"People can sometimes stack multiple loans at the same time, and that can be fine if you're experienced with credit and you've got, got a lot of expendable income and that sort of thing," Shulz added.
LendingTree surveyed 2,000 Americans about their use of Buy Now Pay Later and found that 1/3 of BNPL paid late in the last year. Half financed a purchase knowing they couldn't afford it at the time. Three out of every ten BNPL users use it as a bridge between paychecks. And more than four in 10 Americans have used a BNPL service. That's especially the case for younger people.
"It can be very easy to use the programs you can go to, for example, Sephora, and it's right on their website that you can sign up for a buy now, pay later loan," Bolos said.
Experian has a list of the pros and cons when it comes to Buy Now Pay Later.