7 On Your Side: 'Buy now, pay later' loans are popular, but do they make sense?
NEW YORK (WABC) -- "Buy now, pay later" loans, or BNPLs, have become incredibly popular, up 230% in the last two years.
These are loans are usually interest free and allow you to make a purchase and pay it off over four or five payments.
Sounds great, right?
Well, before you reach for the plastic, pump the brakes. 7 On Your Side's Nina Pineda has the lowdown on these loans.
"Buy now, pay later loans have kind of taken over the world," Lending Tree Chief Credit Analyst Matt Schulz said. "They're everywhere. You can't go to an online retailer without seeing them."
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Schulz says their research at Lending Tree showed a huge spike in these type of loans during the pandemic, as shoppers were enticed with offers to split payments into small chunks with just a few clicks while checking out online carts.
"Unlike a credit card, which has interest rates that you don't know exactly how much you're going to end up paying at the end," he said. "You know exactly how much you're going to pay on a buy now, pay later loan and when that loan's going to end."
Klarna, Afterpay and PayPal paved the way in BNPLs, with Apple joining the trend offering consumers a new way to pay. Recently, investments in business-to-business BNPLs have taken off as rising costs have companies small and large seeking ways to say afloat.
For those of us looking to finance everything from designer duds to a new speaker system, it's easy to qualify.
There's no hard pull on credit to apply, and usually, you pay it off in four equal installment every two weeks.
"That's why everybody loves them, because they're interest free and they're predictable, because they're installment loans," Schulz said. "But the trouble is, they're really easy to get, and that makes it really easy to overspend."
Matt says a BNPL is great for people starting out who have no credit history, but not so great for those of us who don't pay bills on time.
The cons are that it's way too easy to get in deep debt, get caught off guard by the frequent payments, accrue late fees, and not understand return policies -- which can make refunds tricky.
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"It's a little bit of a Wild West situation going on out there," Schulz said. "So it's important to look at the fine print with any financial transaction, but especially with these."
Remember, just because someone is willing to give you these loans doesn't mean you should take them up on it.
You can get in a lot of trouble if you start stacking them on top of each other, because while there's not a hard look into you credit to receive them, you better believe that if you miss a payment, they will ding your credit score.
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