SACRAMENTO, Calif. — ‘Buy now, pay later’ payment plans have grown significantly in popularity as a way for online shoppers to afford their purchases by only paying a portion of the cost upfront.
It appears banks are now starting to catch on to why shoppers like the plans and how lucrative they can be, even going so far as to ban third-party plans.
An expert ABC10 spoke with says there are still ways to manage spending by understanding why the changes are happening.
“This is really about building more of a competitive edge in the market for consumers,” said financial coach Maureen Paley.
Many shoppers have received notices from their bank alerting them customers will be banned from using their credit cards to pay for third-party "buy now, pay later" plans like Klarna and Afterpay.
For example, Chase Bank customers won’t be able to use Chase credit cards to pay for buy now, pay later installment plans starting Oct. 10.
“A lot of these credit card companies and institutions are actually creating their own ‘buy now, pay later’ program within the card itself,” said Paley.
It comes at a time of growing debt. A survey conducted by Harris Poll and reported in Bloomberg News finds 43% of people who took out buy now, pay later loans said they were behind on their payments while 28% said the loans caused them to be delinquent on other debt.
So, are consumers winning or losing when banks make the transition?
“Just remember that the business model for the bank, they want us to use our credit cards,” said Paley.
It means customers might see banks offering incentives like points and buy now, pay later programs to keep the cash flow of charging and paying on the bank credit card.
“There are ways strategically to use credit cards to our benefit,” said Paley.
It can include earning points to help save money on a trip or get cash back. Paley says it all starts with having self-discipline. Take the time to investigate and understand the credit agreement — what you and the bank get out of it.
“Is this really a need or is this a want, and do I need this right away? Chances are you might not,” said Paley.
With the holiday shopping season coming up, the temptation will be there to spend and put purchases on a buy now, pay later plan. Paley recommends starting to save for all those holiday gifts, trips or parties right now.
She says use your budget in a way that you can put money aside and use cash on-hand rather than using a credit card or a buy now, pay later plan that could have negative consequences.
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