Unexpected Charges on Deferred Payment Plans: Consumers Caught Unaware of Hidden Fees
InvestigateTV: The hype around Buy Now, Pay Later (BNPL) services may sound appealing, but Bankrate's latest survey suggests that these services could be a financial pitfall for many Americans. Nearly half of BNPL users (49%) have run into financial troubles after using these services, claiming overspending, missed payments, and regretted purchases as their chief complaints.
Ted Rossman, a consumer finance expert at Bankrate, explains, "We tend to focus only on the installment and forget about the total spending. It's a bit like those infomercials selling 'four easy payments of $39.99' - it can hide the true cost, especially when multiple plans run simultaneously."
In essence, BNPL services enable consumers to split purchases into smaller, interest-free installments, blurring the lines between expenditure and affordability. This breeze of convenience makes it easier to lose track of spending patterns, potentially leading to overspending, especially among younger or financially vulnerable demographics who make up a significant proportion of BNPL users.
Troublingly, many BNPL services now provide physical cards, functioning not only online but in-store, too. While technically classified as debit cards, users can choose installment plans, transforming small purchases into lengthy payment schedules. As Rossman notes, "These are starting to become more credit card-like over time. I believe the industry prefers to market itself as an alternative to credit cards, but the lines are becoming blurred."
To prevent financial woes due to BNPL, Rossman recommends monitoring your BNPL obligations diligently, understanding the terms before agreeing to a payment schedule, and treating BNPL like credit cards when it comes to purchases. After all, if you wouldn't charge it on a credit card, perhaps it's best to skip it with BNPL, too.
Bear in mind that BNPL can be a valuable tool for managing finances - provided you're vigilant about your habits. As Rossman advises, know exactly what you're signing up for, and never let smaller installments overshadow the bigger financial picture.
While ottomies are nice, financial security is priceless.
Fun fact: Did you know that these financial challenges are particularly prevalent among women, Black and Latino consumers, and those with lower credit scores? As a result, BNPL companies could indirectly contribute to growing consumer credit losses. Be aware of the potential pitfalls and exercise caution!
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Additional Insights: Common financial troubles with BNPL include overspending, debt accumulation, late payments, and potential defaults, affecting vulnerable populations. To avoid these problems: budget carefully, monitor all BNPL commitments, avoid using BNPL for routine purchases, check credit impact and repayment terms, and build emergency funds. By treating BNPL like credit and exercising discipline, consumers can dodge financial pitfalls.
Investing in personal-finance education could help consumers make informed decisions about using Buy Now, Pay Later (BNPL) services, as they might otherwise fall into financial troubles. By understanding the true cost of BNPL and monitoring BNPL obligations diligently, consumers can treat BNPL like credit cards, avoid overspending, and maintain financial security.
