Should you use “buy now pay later” services when you shop online?

By Julie K. Robie, Esq.

If you shop online, you may notice several different payment options in the checkout screen, such as Affirm, Afterpay, and Klarna. What are these? Is it a good idea to use them? Here are some answers to help you be a savvy shopper.

What are Affirm, Afterpay, and Klarna?
These services are called “buy now pay later” (BNPL) or “point-of-sale loans.” They are loans that let you pay for an item in installments over time, rather than paying the whole price up front. For example, to buy a $60 sweater, you can pay 4 installments of $15 every 2 weeks.

How much does it cost to use these services?
Some BNPL services market themselves as “free” or “interest-free.” But that is true only if you make all payments on time. If you are one day late, you may be charged a late fee of $7 or more. If multiple payments are late, you will be charged multiple late fees. So, that $60 sweater may actually cost a lot more. Also, some BNPL services let you extend payments out over several months but charge you interest of 20-30%. That is more expensive than some credit cards.

Does using them help or hurt your credit score?
These services usually do not report your payments to credit bureaus. That means they do not help or hurt your credit score. However, if you fall way behind, they can send the debt to a debt collector. Debt collectors will report late payments, and that can hurt your credit.

Are there any problems with using them?
One of the main problems with BNPL services is that they cause shoppers to spend more than they planned to – and often more than they can afford.¹ It feels so easy to just click and “pay later,” but in a few weeks or months, you may have late fees and lots of debt. So, before you click to “buy now pay later,” ask yourself how much you want the item and if you really want to go into debt over it.

¹ In fact, Klarna advertises its services as “payment methods that increase sales.” https://www.klarna.com/us/business/payment-methods/ (as of 3/28/2022). According to this Klarna webpage, “Customers who choose Klarna shop 20% more often and purchase 45% more per transaction on average.” This is good for the store but may be bad for the customer who goes into debt.

This article was published in Legal Aid's newsletter, "The Alert" Volume 38, Issue 1, in Spring 2022. See full issue at this link: “The Alert” – Volume 38, Issue 1 – Legal Aid Society of Cleveland (lasclev.org).