Many online shops offer "buy now, pay later" installment services that target high school and college students. These services are quickly gaining in popularity allowing shoppers to purchase just about anything – from electronics to a pair of shoes – by agreeing to pay a series of smaller installments. Before signing up, consumers should research the option carefully so they can make informed purchasing decisions and avoid getting in over their heads.
During the checkout process with an online store, in addition to the option to pay with a debit or credit card, there’s an option to choose to pay for the order in a specified number of installments. The opportunity to split up payments is appealing to many shoppers, but especially shoppers who may not have or use traditional credit cards when shopping online.
Most of the time, this option comes from a third-party financing company. They make money by charging retailers a small percentage of each sale made through their financing options, and by collecting late fees and interest from consumers. Interest rates on pay-in-installment purchases can range between 0%-30%, depending on your credit history and the retailer. Installments can last for as little as a few weeks or as long as 39 months. Purchasers will need to be approved by the financing company before taking advantage of an installment payment plan.
Consider it a loan. Even though many installment payment services come with only a few small payments and zero-percent interest, it’s critical to remember it’s 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, if any.
Know how your credit could be affected. 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.
