But could you imagine having a loan for every single item you purchase? Or even just for any item over $50? If you don't put them on autopay, it's easy to lose them in your monthly budgeting shuffle. It's easy to remember to make your mortgage and car payments every month or even set them to autopay. So you won't get any credit score benefit from making payments on time.Īnd last, small loans can be hard to manage. For example, they could turn a $1,440 purchase into a $1,500, $1,600, or $1,700+ purchase.Īnother minor downfall is that most of these companies don't report to credit bureaus.
These costs can quickly offset the benefit of delaying payment. It's also worth calling out that interest and fees apply to these loans in many cases. Similar to credit cards, you have to use these apps as a tool to help you and not as a crutch to enable lousy spending habits. Breaking down the payment into multiple smaller payments makes everything sound better, but you have to realize they are the same thing, and you are still spending $1,440.
Paying $40 a month for 36 months sounds much better than paying $1,440 right now. However, perhaps the biggest downfall to buy-now, pay-later apps is that they encourage overspending. If you can afford the item you are buying and genuinely need it, the ability to get an interest-free loan can be a good thing for consumers. And no-interest loans are always a good thing mathematically speaking, thanks to the time value of money.Įven with Affirm's traditional financing, if you have a good credit score, you could get a much longer interest-free or low-interest loan. Starting with the positive, you can get no-interest financing with these apps.įor example, using Klarna's Pay in 4 plan essentially gives you a six-week no-interest loan. But in general, I think they have the potential to do more harm than good. Why I think buy-now, pay-later apps are bad for consumersīuy-now, pay-later apps are not always a bad thing.
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Pay in 30: This is another no-interest loan that Klarna sometimes offers and is very similar to a credit card - you simply need to pay back your purchased item in full within 30 days.So if you bought a $400 item, you would owe $100 at checkout and another $300 spread out over the next six weeks. Pay in four: Entails paying back a purchased item in four equal payments due every two weeks, with the first payment due at purchase.Traditional fixed interest rate loans: Usually, these loan terms will range between three and 36 months with 0 to 30% interest, depending on the item you are buying and your credit score.Most buy-now, pay-later companies offer one of three types of loans: What are buy-now, pay-later apps?īefore diving into the pros and cons of these apps, I wanted to provide a quick overview of them.Ī few popular companies are offering this service, including: In my opinion as a personal finance writer, yes.
But is there a downfall to adopting that same model for everyday items?
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