More shoppers than ever are on track to use "buy now, pay later" plans this holiday season, as the ability to spread out payments looks attractive at a time when Americans are feeling the effects of inflation. Buy now, pay later can be particularly appealing to consumers who have low credit scores or no credit history because, unlike credit card companies, most of the companies providing the service run only soft credit checks and don’t report the loans and payment histories to the credit bureaus. To use a buy now, pay later plan, consumers typically sign up with bank account information or a debit or credit card, and agree to pay for purchases in monthly installments, typically over eight weeks or more. The loans are marketed as requiring no or low interest, or only conditional fees, such as late payment fees. Klarna, Afterpay and Affirm are three of the biggest buy now, pay later companies. These plans lead consumers to overextend themselves because not paying full price up front leaves, in the shopper’s mind at least, more money for smaller purchases. For merchants, that’s part of the appeal. Retailers have found that customers are more likely to have bigger cart sizes or to convert from browsing to checking out when buy now, pay later is offered. Unfortunately, many people don’t look at buy now, pay later as debt, but it is. If a consumer misses a payment, they can face fees, interest, or the possibility of being locked out of using the services in the future.
