Consumer Alert: As more of us are using ‘buy now, pay later’ loans, here are the pros and cons

ROCHESTER, N.Y. This consumer alert is all about what you buy and how you pay. A new study finds that more of us are choosing to buy now and pay later. 

And that study had some troubling revelations. In the first three months of the year, the number of us getting buy now pay later loans increased by 40 percent. 

And here’s what’s worrisome. A study by Adobe Analytics showed that consumers are using these loans not only for discretionary items but also for necessities like groceries. And that means you’ve likely waded into financial deep waters and are at risk of drowning.

You’ve likely seen an offer to buy now pay later. They pop during check-out nearly every time you’re shopping online. And this is not your mama’s layaway. These are installment loans that allow you to divide your purchase into multiple equal payments with the first due at checkout. 

And some, like Affirm, don’t charge late fees.

 Say for example, you’re buying gifts for dad at Walmart. To demonstrate, I filled my online basket with a bike, helmet, lights for his bike and a Father’s Day t-shirt. The total came to $338.84. Immediately, I got an offer from Affirm to pay in $22 installments. I then checked the terms of service. It says this is an installment loan with an interest rate ranging from zero percent to 36 percent depending on my credit score. That’s far higher than a credit card. So those struggling the most financially end up paying the most.

Here are the pros of these loans:

• With good credit, some are zero percent interest.
• There’s no minimum credit score to get one.
• They’re readily available.

Here are the cons:

• Some plans charge high interest – especially if you have bad credit.
• Some charge fees.
• These loans make it easy to overspend.
• Customer service is limited or non-existent.

Buy now pay later loans have become so popular because they’re so convenient. If you’re shopping in the store, you can use a buy now pay later app. But that Adobe Analytics study showed that people who use buy now pay later are more likely to have late payments on their credit reports. These loans can be helpful, but only when used judiciously.