BBB Tip: Buy Now, Pay Later

“Buy now, pay later” installment services are growing in popularity among national retailers of all sizes. Better Business Bureau^® (BBB^®) advises consumers to read and understand the terms of an installment purchase before clicking "Buy.” Otherwise, they could be surprised by fees or other charges that could add to the cost of their purchases.

Installment purchases allow a buyer to space out smaller payments on an item over time without using a credit card. Unlike the layaway services many retailers offered in the past, a buyer receives the item immediately, without having to pay the full purchase price first.

A recent report by the Consumer Financial Protection Bureau (CFPB) found that purchases through the largest installment services topped $24 billion in 2021, nearly tripling the 2020 total of $8.3 billion. The agency notes that these services are most utilized by Millennials, or 25- to 40-year-olds.

Buyers typically will need to be approved by the financing company before taking advantage of an installment payment plan. While many installment payment services come with only a few small payments and zero-percent interest, interest rates on installment purchases can be as high as 30%, depending on your credit history and the retailer, and installments can last for as little as a few weeks or as long as 39 months. Late fees also may apply if you do not make payments on time.

More than 15,000 consumers filed complaints with BBB last year about payment processing services, which include installment payment financing companies. The CFPB report looks toward regulating these companies similarly to credit cards, with potential rules including limits on fees and data sharing protections.

Tips for buying items on installment payments:

• Consider it a loan. It’s critical to remember that buying an item and paying for it later, even without interest, 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 actually afford, and make your decision accordingly.
• Stick to a budget. Think about how bi-weekly or monthly payments could affect your budget – even if the payments seem small. Will they cut into the funds set aside for necessary expenses, such as rent or groceries?
• Read the fine print. Before signing up to pay in installments, understand exactly 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 in 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 at BBB.org to make sure they are a reputable company with honest business practices.
• Know how your credit could be affected. Most installment services advertise that they do not require a credit check. However, keep in mind that unpaid debts can be sent to collections agencies and, after a delinquent period of 90 days, can be reported to credit bureaus. This could have a negative impact on your credit score.