What should consumers know about popular buy now, pay later plans?

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STATEN ISLAND, NY – Call it a modern layaway. Buy Now, Pay Later (BNPL) – an app-generated point-of-sale loan that offers the ability to finance anything from a laptop to a sweater – is currently sweeping the retail sector, allowing consumers to buy items online or in store and spread the cost through a series of installment payments, rather than paying the entire purchase upfront. It’s a crowded market with hundreds of options like Klarna, Affirm, and Afterpay topping it. And this week, Apple got in on the game.

According Wiredat its annual software conference on June 6, Apple said that “later this year” with the release of its new iPhone software, the tech mega-company will roll out Apple Pay Later, an option that will co-exist alongside other other Apple Pay services and allow iPhone users in the United States to pay for things in installments — free of charge and interest-free — over a six-week period.

It’s a service that’s seen notable growth in recent years, Wired reported, and is expected to account for $680 billion, or 12%, of all e-commerce transactions by 2025. Initially offering loans Short-term with no interest or fees, the apps are different from traditional credit cards, opting not to perform credit checks before issuing a loan.

But critics of the BNPL, including the Consumer Financial Protection Bureau (CFPB), have expressed concern about the ease of “accumulating debt” through the use of these services.

“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 also gets the debt immediately,” said the director of the CFPB, Rohit Chopra, in a recent press release. “We have ordered Affirm, Afterpay, Klarna, PayPal and Zip to submit information so that we can report to the public on industry practices and risks.”

Wired reported that Marshall Lux, a research fellow at Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government, wrote that BNPL services exist in a “legal gray area” and that for consumers who are already struggling to pay for things, “BNPL can facilitate spending beyond ability to pay.”

This is a trend considered particularly dangerous for young consumers.

“The interest rate you manage to get on your loan depends on a variety of factors, including the purchase amount, the length of the payment term and the merchant, so you could end up with an APR of up to 30 %,” said one article on CNBC noted, detailing the loans offered by Affirm. “If you’re late with payments, you may not be able to get a loan from Affirm in the future, and it could potentially affect your credit score.”

Other major drawbacks of these services include late fees and transaction fees, as well as limited availability. PayPal’s BNPL service can only be used at PayPal-connected merchants, CNBC reported, and the order value is capped at $1,500, so you can’t use it to buy really expensive items. Sezzle, a Minneapolis-based BNPL provider, only offers one short-term credit option, so it’s not a good choice if you need a longer repayment period.

An Apple spokesperson told Wired that its BNPL “is a new category that will continue to evolve.”

Stay tuned to see if the trillion-dollar company begins to dominate the market.

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