‘Buy now, pay later’ services see rise in late payments

INDIANAPOLIS (WISH) — Michelle Cloutier of Indianapolis occasionally uses “buy now, pay later” services while shopping.

“I go to Amazon and Affirm is already right there,” Cloutier said.

“Buy now, pay later” services are short-term loans that allow a consumer to buy an item immediately and repay loans in interest-free installments over a period of time.

“This is a convenience thing that can be such a slippery slope,” Cloutier said. “It becomes easy. If I do it this time, then next time I’ll do it even easier and then by then you’re living on it.”

A new LendingTree survey  found that 41% of users of “buy now, pay later,” sometimes known by the acronym BNPL, made at least one late payment in the past year, up from 34% previously, with many borrowers using “buy now, pay later” for everyday expenses rather than occasional splurges.

Cloutier was once $20,000 in debt from credit cards, so she makes sure to make any “buy now, pay later” payments on time.

“Yes, because in my previous lives I got burned, in my 20s,” Cloutier said.

Nonprofit Money Management International says many consumers are making more late payments. Thomas Nitzsche, vice president of public relations at the nonprofit, said “When that happens, you can get hit with fees and if you default on it, it can end up on your credit report. When you’re juggling those BNPL payments with other financial obligations like credit cards, student loan, auto loan, uh, housing payments, utilities, it could potentially push some people over the edge if they’re not very careful.”

Most “buy now, pay later” loans don’t charge interest but do charge late fees. These fees vary by lender and rarely exceed $10 per late installment, but if people are juggling multiple BNPL loans and a tight budget is the main reason why they missed payments, the added strain of a late fee is only going to make it harder to get caught up, according to Money Management International.

Cloutier is using credit counseling at Money Management International to get out of debt. “Really, the first thing you have to do is figure out a working budget. If you’re using these services as a patchwork for a broken budget, it’s going to fail. It’s putting a Band-Aid on the Hoover dam.”

Tips from Money Management International List “buy now, pay later” loans: The nature of “buy now, pay later” loans — small amounts, quick approval — makes it possible that users are not totally clear on how bad the situation has gotten. To get back on track, list out every active loan: include the provider, the balance, the due date, and the payment amounts. Assess your situation With a complete picture of “buy now, pay later” debt, determine how to proceed. If the debt is big, but manageable, users may just need to set up automated payments, avoid adding new debt, and wait until everything’s been paid off. If the debt is too big to handle with existing income, users will have to figure out the best way to get around that barrier: Create a temporary source of additional income with a side hustle or part time job; use a debt consolidation loan to clear away the debts and leave you with a more manageable, though likely more expensive, monthly payment; or work with a nonprofit credit counselor to update your budget, review your options, and create an affordable repayment plan.