Should you use buy now, pay later services while holiday shopping?

Posted at 7:03 AM, Dec 22, 2020
and last updated 2020-12-22 08:03:09-05

Buy now, pay later services like Klarna, Affirm, PayPal Credit or Afterpay are all part of a multi-billion dollar industry.

They've been around for years, but because so many people are shopping online during COVID-19, this industry is booming.

"Buy now pay later is rising substantially. Most of these companies are up 200 percent or 300 percent from where they were a year ago. Bank of America pegs it as a $65 billion industry today, but they're expecting 10 to 15 times the growth in the next five years. So we could be talking about a $1 trillion market by 2025," said Ted Rossman, an industry analyst with

The services give you another way to finance your purchases by paying installments on what you want to buy. You need to apply for each purchase you make and the service may do a soft credit check, which won't impact your credit score. In most cases, you make four payments within six weeks at no interest.

"There's definitely a price-sensitive angle to this, you know, maybe somebody who's afraid of credit card debt. They don't want to drag these purchases on forever and ever. A lot of people like to use their debit cards for things. But if they don't have the money now, this allows them to buy some more time," Rossman continued.

Rossman explained the terms can change depending on things like the service you use and your credit score or debt status. Also if don't make that six-week deadline, you'll pay for that.

"Sometimes, you'll actually be charged a higher interest rate with by now pay later than you would with a credit card. Credit cards average about 16. Sometimes people who use buy now, pay later are paying something in the 20s or even 30 percent, so you've definitely got to figure out where you fall on that spectrum," said Rossman.

"I would think of it as a microloan. Because typically, you have to apply for each individual purchase," he said.

"So that $100 shirt or that $500 purse, like those are totally separate transactions, you have to apply separately," he continued.

Something else to consider, Rossman says, is that these buy now pay later services don't have the same fraud protection as a credit card does.

Click here to read more about buy now, pay later services.

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