With inflation at its highest in recent decades, some consumers rely on “Buy Now, Pay Later” (BNPL) installment services to make daily purchases. Before signing up, BBB of Metro Atlanta warns consumers to research the option carefully to make informed purchasing decisions and avoid serious debt.

BNPL is a type of loan that allows consumers to take an item home immediately while paying for it in bi-weekly installments. Traditionally for high-value items, the concept has exploded in the past decade (even more during the pandemic as eCommerce has boomed) and is now being used for small-dollar purchases.

“Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too,” said Rohit Chopra, director of the Consumer Financial Protection Bureau. “We have ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so that we can report to the public about industry practices and risks.”

“Payment processing services, which include installment payment financing companies, were among BBB most complained-about types of business in 2021. More than 15,000 consumers filed complaints with BBB about these businesses,” said Brian Catania, CEO and president of BBB of Metro Atlanta.

Consumers usually encounter the BNPL option when shopping online or through a mobile app, although some brick-and-mortar stores also offer it. A typical repayment plan involves making a small down payment at the time of purchase and then spreading the balance over four bi-weekly payments charged to a bank account or debit or credit card. The lender may not pull a credit report. Interest rates on pay-in installment purchases can range between 0% to 30%, depending on credit history and the retailer. Installments can last for as little as a few weeks or 39 months. Most BNPL loan application process is quicker and less cumbersome than applying for other forms of credit.

According to Credit Karma, more than 4 in 10 Americans have used a BNPL loan. Experts say they’re prevalent among younger adults and lower-income consumers. The average transaction is about $200, and some users take them out frequently.

Pay in Installment Smart Shopping Tips

· Consider it a loan. Even though many installment payment services come with only a few small payments and zero-percent interest, it’s critical to remember it is still borrowing money to enjoy a product before it is paid in full. Ask yourself if paying the total price means spending more than you can afford, and decide accordingly.

· Stick to a budget. Think about how bi-weekly or monthly payments could affect your budget – even if the payments seem small.

· Read the fine print. Before paying in installments, understand precisely how the service works. Read the fine print of the agreement to find out what company is financing, how long the financing terms are to pay off the purchase and how many installments, how they handle late payments, and how much interest is charged.

· Get to know the financing company. Look up the financing company on BBB.org to ensure they are a reputable company with honest business practices.

· Know how your credit could be affected. Keep in mind that unpaid debts can be sent to collections agencies and reported to credit bureaus after a late period of 90 days. This could negatively impact your credit score.