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, growing by 230% in the last two years.

These loans are usually interest-free and allow you to make a purchase and pay it off over four or five installments.

Sounds great right?

Well, before you reach for the plastic, pump the brakes. Nina Pineda from 7 On Your Side has the lowdown on these loans.

“Buy now, pay later Credit has taken over the world,” said Matt Schulz, Lending Tree’s chief credit analyst. “They are everywhere. You can’t go to an online retailer without seeing them.”

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According to Schulz, her research at Lending Tree showed a huge surge in this type of lending during the pandemic, as shoppers were enticed with offers to break payments into small chunks with just a few clicks while checking out online shopping carts.

“Unlike a credit card, where you have interest rates where you don’t know exactly how much you’re going to end up paying,” he said. “You know exactly how much you pay now for a purchase, pay a loan later, and when that loan ends.”

Klarna, Afterpay, and PayPal paved the way for BNPLs, and Apple followed the trend, offering consumers a new payment method. Recently, investments in business-to-business BNPLs have picked up steam as rising costs push businesses large and small to stay afloat.

For those of us looking to fund everything from designer clothes to a new speaker system, qualifying is easy.

Applying for a loan is not difficult, and you usually pay it off in four equal installments every two weeks.

“That’s why everyone loves them, because they’re interest-free and predictable, because they’re installment loans,” Schulz said. “But the problem is that they’re really easy to get, and that makes it really easy to overspend.”

Matt says a BNPL is great for people starting out with no credit history, but not so great for those of us who don’t pay bills on time.

The downsides are that it’s far too easy to get into debt, get caught out by the frequent payments, charge late fees, and don’t understand the return policy — which can make refunds difficult.

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“It’s a bit of a Wild West situation out there,” Schulz said. “That’s why it’s important to pay attention to the fine print of any financial transaction, but especially this one.”

Remember, just because someone is willing to give you these loans doesn’t mean you should take them.

You can get in a lot of trouble if you start stacking them on top of each other, because while you don’t have to look closely at your credit to get them, you’d better believe that if you miss a payment, they’ll hurt your credit score.

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