Can You Trust
“Buy Now Pay Later”?

Online buy now pay later programs Online buy now pay later programs

Can You Trust
“Buy Now Pay Later”?

Just four easy payments ...
seems too good to be true

Water repellent fishtail jacket,
$281 (or $27 a month) by Outclass

It almost seems too good to be true. You're shopping online and find a handsome jacket you like from Canadian-made menswear brand Outclass. It's got everything you're looking for, until you see that the price is nearly $300. You weren't looking to spend that much today. But what if you didn't have to?

That's the promise made next to the price: "Starting at $27 a month with Affirm." Meaning you get the jacket now, and then make payments—often without any interest—until it's paid off. It could be a few weeks or a few months. Tempting, right? Which is why you're seeing so much more of it online these days.

Buy Now, Pay Later (also known as BNPL) is pretty much exactly what it sounds like. Services like Afterpay and Sezzle let you purchase expensive items by breaking the price up into more manageable payments. This way you don't have to save up or drop a large amount of cash all at once.

All you have to do is sign up—usually when you're ready to check out from a retailer. A few require a quick credit check, but not all of them. Couldn't you do the same with a credit card? Yes and no. Sure, you could charge it but then you'd likely have a higher interest rate. And because so many credit card holders end up paying the bare minimum, they shell out much more than the retail price for things. Plus, nearly two-thirds of Millennials don't even own a credit card, according to a Bankrate survey.

They also make for a streamlined way to keep track of your spending. These BNPL services are predictable. You know exactly how much you owe and how many months you have to pay it off. That can be easier to manage than an open-ended credit card balance. And they'll keep you in check with spending caps or missed-payment warnings. For example, if you're late with an Afterpay payment, the company cuts you off until it's settled. You can't dig yourself in any deeper than a simple late fee.

So where's the catch? Well, one might argue that they're tempting people into cycles of debt. But isn't that the American way? Lauren Saunders, the associate director with the National Consumer Law Center, told GQ that the downside to these services is that "they make it very easy to buy things on credit and to get into debt buying things when you really can't afford it." And there's certainly some psychology at play. BNPL companies know that you'll be much more likely to buy more (or more expensive) stuff if you don't have to pay full price right up front. Which is why retailers pay the companies commissions on every transaction.

It definitely takes the sting out of big-ticket buys. So as long as you're utilizing them responsibly, they can make online purchasing easier while ensuring you never miss out on something you really want. As for which one's right for you, we've compared the most popular with a standard credit card (using the average interest rate and late fee).

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How They Compare

  Affirm Afterpay Klarna Sezzle

A Standard
Credit Card

Purchase Price

$350

$350

$350

$350

$350

Interest Rate

0% to 30%

0%

0%

0%

16.97%

Payments

Once a Month

(in 3, 6 or 12 months)

Every Two Weeks

(for 6 weeks)

Every Two Weeks

(for 6 weeks)

Every Two Weeks

(for 6 weeks)

Once a Month

(until paid in full)

Late Fee

None

$24

$35

$10

$36

Total Amount Spent

$350 - $367.59

(paid over 3 months)

$350

($374 if you miss a payment)

$350

($385 if you miss a payment)

$350

($360 if you miss a payment)

$359.95

($395.95 if you miss a payment)

Mind Your Credit Score

These programs do report to credit bureaus. So missing payments can (and will) lower your score. But it's also an easy way to establish a good credit history by consistently making your payments on time.

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