All right, it is time for stretching your dollar
where we give you tangible tips to help you make
the most of your money. And today we're looking
at a practice that is literally a way to stretch
your dollar that's buy now pay later and the services
that they are included in. So in this high
inflation, high rate environment, splitting up payments for
purchases can be appealing to Americans, especially low income
and younger consumers with the promise of interest free loans
. Well, of course, like anything, there
are some dangers to be aware of when using these
services I'm joined now by Charlotte Principato Financial Services Analyst
at Morning Consul to help break it down Charlotte.
Thank you so much for coming on the show.
And before we get into some of these specific services
, let's talk about some of the benefits and risks
, the pros and cons of buying out pay later
. Yeah, absolutely. Thank you for having me
. I think the first thing to really be clear
about is what do we mean when we say buy
now pay later? And usually when folks use the
term B MP L, it refers to purchasing something
and at the moment of purchasing, agreeing to pay
for that over four uh equal size payments. So
you make your first payment, which is about 25%
of the purchase price and then you agree to pay
the other 75% across three installments and usually with zero
interest. So you're basically getting the thing that you're
paying for without paying for it totally upfront a point
of sale, purchasing and, and in installment loan
. So it's interesting, Charlotte, we did get
some news earlier this week that Apple is now making
its way to buy now, pay later as well
, promising no fees and no interest quite remarkably.
How does that compare to others out there that have
been out there for a while? Like a firm
? And yes. Well, Apple Pay announced this
in 2021. And so it's exciting to see it
coming out. Now, my understanding from Apple,
Apple's Pay later service is that you'll be paying over
six weeks, four installments over six weeks. And
I think what's really important when we use the term
BNP L and for consumers, when they're looking at
BNP L is not to assume that first of all
that, it will be a zero interest loan and
not to assume that it will be necessarily in four
installments. This term is now being used for all
different types of installment loans, some that do carry
interest, some that are more than four payments,
some that are longer than six weeks. And so
it's, I really caution consumers to read the fine
print because even I can't tell you all of cla's
different policies, all of affirms after pay different policies
within each organization, they have different policies depending on
what you're buying. So you really have to read
the fine print and understand what you're doing. Ok
. Uh, very good to know. Right.
Because no one wants to be on the hook for
a high interest loan, especially in this high rate
environment. Charlotte any other red flags to look out
for, if you're a user interested in one of
these, I really would caution consumers to think about
the individual purchase they're making. And if they really
need to spread out the cost of that, we
are starting to see consumers use B MP L for
more what we say small dollar purchases and while the
, the idea that they can repay that is pretty
high, if you're maybe paying for a tank of
gas with a B P L uh option, you
could also get yourself in a position where you start
to snowball and don't realize just how many things you
used with the B NPL payment. And so you
could be in a position where those sort of things
stack up in the same way that we saw with
people using credit cards before the card Act, uh
kind of put some guard rails and, and more
consumer protections. There's currently really not any protections for
BPL. And that's something the CFP is looking into
. Well, what about what this might mean for
the overall market? Charlotte or even knock on effects
, right. If you're a consumer and you're on
the hook to pay back a loan, certainly that
impacts you, but with rates as high as they
are and debt rising as well, I mean,
is there any concern that we could see some sort
of debt bubble in the market? I think we're
gonna have to wait and see right now the amount
, the dollar amount of B MP L loans on
average is around 100 and$35. So it would
take a lot of loans uh not being repaid to
create any significant I'd say bubble, but we will
have to continue to see how consumers choose between using
a credit card to finance something or a personal loan
and A B NPL loan right now, consumers are
using all of them. And again, B MP
L loans are among the smaller dollar loans. So
their impact in terms of, you know, really
creating any kind of trouble for the B NPL providers
or for consumers is lower. Certainly, though B
NPL valuations have dropped as folks have, have,
have really thought again about whether consumers are gonna be
using B NPL in the future. All right,
Charlotte, Principato Financial services analyst and Morning Consult Charlotte
. Thank you.