The pros and cons of installment payments

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You can use buy now, pay later for just about anything these days.

Since the start of the pandemic, installment payments have exploded in popularity, alongside a general increase in online shopping.

In some cases, splitting the cost of a large purchase – like a Platoon, for example – makes financial sense, especially at 0%. Still, consumers can run into problems if they juggle too many payment plans at once.

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These days, most consumers will see a buy now, pay later option when shopping online at retailers like Target, Walmart, and Amazon, and many vendors are also introducing browser extensions, which you can download and apply. to any online purchase. Then there are the apps, which also let you use installment payments when buying things in person, just like you would use Apple Pay.

According to a investigation by DebtHammer.org — a jump of 41% since April of last year.

Of those who used installment payment plans, 22% regret their decision, according to the report.

Around 30% said they struggled to keep up with payments and had to skip paying an essential bill to avoid defaults.

If you miss a payment, you may be charged late fees, deferred interest, or other penalties, depending on the lender.

Afterpay, for example, charges an initial late fee of $10 and an additional $7 if the payment is still unpaid a week later. (CNBC’s Select has a full rundown of fees, APRs, whether a credit check is performed, and whether the provider reports to credit reporting companies, in which case a late payment could also affect your credit score. .)

Separate studies also showed that installment buying can encourage consumers to spend more than they can afford on impulse purchases.

“People buy ‘wants’ not ‘needs’,” said Howard Dvorkin, CPA and president of Debt.com.

Consumers are more likely to buy now and pay later for purchases such as jewelry or clothing, for example, rather than appliance repairs, he said. However, these discretionary purchases should only be made if you have cash on hand, he added.

“At the end of the day, you shouldn’t buy things you don’t have money for.”

The Consumer Financial Protection Bureau said it is investigating popular buy-it-now and pay-later programs Afterpay, Affirm, Klarna, PayPal and Zip.

The financial watchdog said it was particularly concerned about the impact these schemes have on consumers building up debt, as well as applicable consumer protection laws and how payment providers collect data. .

“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 CFPB director. , Rohit Chopra, in a statement.

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