Buy Now, Pay Later: Protect Yourself Before You Check Out
Buy Now, Pay Later (BNPL) plans are a popular way to make purchases online. But like all forms of credit, BNPL comes with its share of risks. Before your next big purchase, make sure you are adequately informed about BNPL, so you don’t end up owing more than you bargained for.
What is BNPL?
Buy Now, Pay Later plans are a type of credit that allows customers to fully purchase products and spread payment over installments. These are often advertised as “pay in four” plans that bill equal amounts every few weeks. While BNPL options are now common at major stores, BNPL is not a simple installment agreement with a store itself. Rather, BNPL is a line of credit from an outside company.
Potential Risks with BNPL
- Overspending: Low initial payments, no credit checks, and approval at the click of a button are a powerful combination that can lead consumers to buy too much, too quickly, and on too many different payment plans at once. The risk of overspending multiplies when using several BNPL services at different stores. Keeping track of payment plans and due dates can be harder when it’s divided across multiple services.
- Unpredictable Protections: Consumer protections can vary greatly from one BNPL company to another. Other types of credit, like credit cards, come with protections such as what a company can say in its advertising, what it must tell a customer before signing up for a credit plan, how much it can charge in fees or interest, and how it can collect debts. A customer who may be used to using one BNPL company may be surprised to find very different fees or conditions in the fine print of another company.
- Extra Fees: An “interest free” BNPL plan may come with fees in the fine print. Multiple BNPL services have charged their customers “convenience fees,” late fees, and other charges. In some cases, these fees can even turn out to be higher than what could be charged as interest for other types of credit.
- Data Privacy: Even if you’re charged no interest and no fees, you may still be paying for your installment plan with your data. Many BNPL lenders track each of their customers’ spending and shopping habits for marketing purposes. This is seen more often with BNPL services that offer their payment plans through apps versus the point of sale.
How to Protect Yourself
- Check for a License: In California, many BNPL plans are considered loans and providers must have a license under the California Financing Law. These licenses come with rules on how loans can be marketed and made, how much interest the license-holder can charge, and how debts can be collected. If you are unsure if a BNPL company has a license, you can check on the DFPI’s website.
- Check Your Spending: Before clicking “checkout,” make sure you don’t have too many BNPL plans at once in order to avoid overspending. Consider putting your payment dates on a personal calendar to make it easier to see how much you’re paying each month and when.
- Check Your Credit Reports: Some BNPL services do report customer lines of credit and payment histories to credit rating agencies, just like other lenders. Regularly check your credit report from each of the major rating agencies to see if your BNPL plans have impacted your credit score.
- Speak Up: If you have used a BNPL service and believe that you have been misled, treated unfairly, or charged unexpected fees, File a Complaint with the DFPI online or by mail. For questions or help filing a complaint, call us at (866) 275-2677.
Bottom Line
While BNPL services can be useful, they are still a type of credit and should be used carefully. By keeping track of your spending and doing your homework before signing up for a BNPL plan, you can make sure your shopping doesn’t cost you more than you expected.