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Risks of buy now, pay later loans
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Why you should reconsider using buy now, pay later loans

If you have an ongoing subscription service, the easiest way to pay is to set up an autopay plan. If you’re worried about late fees and interest, autopay is one way to avoid those penalties.

While you may be tempted to spread autopayment plans around, some recurring charges are better off being paid as you go. For example, an annual fee may cost less per month than a monthly charge, but it could hit you hard when that annual payment comes due. Tap or click here for five bills you should never put on autopay.

Buy now, pay later loans let you split the cost of purchases into equal payments, then pay it off on a schedule. While you usually don’t have to deal with credit checks and traditional loan agreements, there are drawbacks to these payment plans.

The good and the bad

In December, we reported the potential dangers of buy now, pay later services. You’ll often see plans consisting of four installments paid weekly, bi-weekly or monthly with a minimum purchase price.

These plans help ease the financial stress of paying for a product all at once. It sounds good, but one problem is the temptation to buy more than you can afford. Smaller payment increments can add up faster than you realize.

You also have to watch out for hidden fees. While you may not pay interest in the first payment, you may have to do so down the line. A fixed cost sounds good, but the price may be higher by the end of the plan than it would have been if you had bought the product in one payment.

Fees and increments can skyrocket up to 30%, and late payments can put a real hit on your wallet.

The BNPL boom

There’s a new development in the BNPL world. These transactions are now showing up on your credit report. In December, Equifax announced that it would be including BNPL payment information on credit reports starting in the first quarter of 2022.

In January, Experian announced its upcoming Buy Now Pay Later Bureau, which will debut this spring. In February, Transunion announced point-of-sale solutions that let consumers add BNPL to their credit files.

These companies tout the benefit of having BNPL included in your credit history. For one, it can help to build credit. Paying off these loans on time will benefit younger buyers and people with bad credit, as it provides credit-strengthening opportunities they usually couldn’t afford.

Some popular BNPL services include:

  • Affirm
  • Afterpay
  • Klarna
  • PayPal Pay in 4
  • Perpay
  • Sezzle
  • Splitit
  • Zip

Amazon has its own BNPL system through Affirm. Tap or click here to learn more.

Not so fast

As with any payment, missing a BNPL will impact your credit score if it’s part of your report. You also don’t have the same protections from BNPL lenders that you may have from more traditional institutions.

Our advice stands: don’t use these services for luxury items or things you don’t need.

Keep reading:

Use a payment app? New scam stealing thousands from unsuspecting victims

BNPL is surging but it’s not good for everyone

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