Charlotte Principato, financial services analyst with Morning Consult, joined Cheddar News to explain the benefits and risks of Buy Now, Pay Later.

Closing Bell

Buy Now, Pay Later Booms in Popularity

All right, it is time for stretching your dollar where we give you tangible tips to help you make the most of your money. And today we're looking at a practice that is literally a way to stretch your dollar that's buy now pay later and the services that they are included in. So in this high inflation, high rate environment, splitting up payments for purchases can be appealing to Americans, especially low income and younger consumers with the promise of interest free loans. Well, of course, like anything, there are some dangers to be aware of when using these services I'm joined now by Charlotte Principato financial Services analyst at Morning Con to help break it down Charlotte. Thank you so much for coming on the show. And before we get into some of these specific services, let's talk about some of the benefits and risks, the pros and cons of buying out pay later. Yeah, absolutely. Thank you for having me. I think the first thing to really be clear about is what do we mean when we say buy now pay later? And usually when folks use the term B MP L, it refers to purchasing something and at the moment of purchasing, agreeing to pay for that over four uh equal size payments. So you make your first payment, which is about 25% of the purchase price and then you agree to pay the other 75% across three installments and usually with zero interest. So you are basically getting the thing that you're paying for without paying for it totally upfront a point of sale, purchasing and, and in installment loan. So it's interesting, Charlotte, we did get some news earlier this week that Apple is now making its way to buy now, pay later as well, promising no fees and no interest quite remarkably. How does that compare to others out there that have been out there for a while? Like a firm? And yes. Well, Apple Pay announced this in 2021. And so it's exciting to see it coming out. Now, my understanding from Apple, Apple Pay later service is that you'll be paying over six weeks, four installments over six weeks. And I think what's really important when we use the term BNP L and for consumers, when they're looking at BNP L is not to assume that first of all that, it will be a zero interest loan and not to assume that it will be necessarily in four installments. This term is now being used for all different types of installment loans, some that do carry interest, some that are more than four payments some that are longer than six weeks. And so it's, I really caution consumers to read the fine print because even I can't tell you all of cla's different policies, all of affirms after pay different policies within each organization, they have different policies depending on what you're buying. So you really have to read the fine print and understand what you're doing. Ok. Uh, very good to know. Right. Because no one wants to be on the hook for a high interest loan, especially in this high rate environment. Charlotte any other red flags to look out for, if you're a user interested in one of these, I really would caution consumers to think about the individual purchase they're making. And if they really need to spread out the cost of that, we are starting to see consumers use B MP L for more what we say small dollar purchases and while the, the idea that they can repay that is pretty high, if you're maybe paying for a tank of gas with a B and P L uh option, you could also get yourself in a position where you start to snowball and don't realize just how many things you used with the B NPL payment. And so you could be in a position where those sort of things stack up in the same way that we saw with people using credit cards before the card Act, uh kind of put some guard rails and, and more consumer protections, there's currently really not any protections for BNP and that's something the CFP is looking into. Well, what about what this might mean for the overall market, Charlotte or even knock on effects, right? If you're a consumer and you're on the hook to pay back a loan, certainly that impacts you. But with rates as high as they are and debt rising as well, I mean, is there any concern that we could see some sort of debt bubble in the market? I think we're gonna have to wait and see right now the amount, the dollar amount of the MP L loans on average is around $135. So it would take a lot of loans uh not being repaid to create any significant I'd say bubble, but we will have to continue to see how consumers choose between using a credit card to finance something or a personal loan and A B NPL loan right now, consumers are using all of them. And again, B MP L loans are among the smaller dollar loans. So their impact in terms of, you know, really creating any kind of trouble for the B NPL providers or for consumers is lower. Certainly, though B NPL valuations have dropped as folks have have, have really thought again about whether consumers are gonna be using B NPL in the future. All right, Charlotte, Principato Financial Services analyst and Morning Consul Charlotte. Thank you.