What to know about "buy now, pay later" plans during the holiday season
"Buy now, pay later" plans are becoming more popular for shoppers this holiday season.
The popularity of companies that provide the option, including Klarna, Afterpay and Affirm, is on the rise.
A recent survey by LegalShield found more than 75% of Americans have used a "buy now, pay later" plan to finance a purchase.
"You can buy something that's more expensive without taking on the kinds of interest that you would see with credit cards," Seth Ketron, associate professor of marketing at the University of St. Thomas, said.
The survey also said that nearly half of those people who have opted into a plan have missed a payment. Ketron urges consumers to think before they spend.
"It can become easy for people, especially if they're doing multiples of these, to lose control," he said.
Earlier this month, Minnesota Attorney General Keith Ellison joined a multistate coalition of seven attorneys general asking six of the largest companies for information regarding pricing, repayment structures, consumer contracts, user agreements and disclosures. Ellison's office says the Trump administration abandoned "a federal rule that the Biden Administration issued that would have required BNPL providers to adhere to the same consumer protections as other lenders."
"We know people are using them to buy gas and groceries, and they can end up in a lot of debt," Jamie Lettis, associate editor with Consumers' Checkbook, said.
Consumers' Checkbook is a nonprofit advocacy group based in Washington, D.C. Lettis says "buy now, pay later" companies don't offer the same protections as credit cards.
"If there's a problem, you get bad service or a product that doesn't work and the vendor won't make it right, you have the power to use a credit card chargeback and your credit card company will help you get that money back," he said.
WCCO asked Ketron if he has any advice for consumers.
What are some creative ways to give gifts to people that aren't going to cause you to have to break your bank? Can you make something? Thrift stores are a great place to look. Antique stores," he said. "Gifts are supposed to be about the idea behind them and the thought behind them as opposed to just being a high-ticket item that you really can't afford."
This summer, the Fair Isaac Corporation announced it would be incorporating "buy now, pay later" into credit scores. Ellison says those with concerns should reach out to his office.