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Dangers of buy now, pay later plans

Dangers of buy now, pay later plans

Nearly half of American consumers have used buy now, pay later programs. By one estimate, $100 billion in purchases will be made using buy now, pay later programs in 2021, four times the amount for 2020. Consumers make the first payment at the time of purchase and pay the balance through a series of installments, with zero or low interest rates. The installments can be made via debit card, credit card, check or bank transfer. Usually there is no credit check and no inquiry into the consumer’s ability to pay. If there is no interest and not more than four future installments, the Truth in Lending Act does not apply.

What are the problems?

First, statistics show that the average purchase made using one of these plans is 45% larger than one that is not.  People spend more than they can afford if they don't have to pay immediately.

Second, if you are late on a payment, there are usually hefty late fees. It is easy to lose track of the due dates on installments. Nearly half of buy now, pay later customers paid one or more late fees. Some suspect that the programs are set up to profit from late fees.

Third, if you buy something that is not delivered, faulty, or a scam, and pay for it using a credit card, you have the right to dispute payment. You do not have this right with many buy now, pay later plans. The dispute rights are given by the Truth in Lending Act. If there is no interest and not more than four future installments on a buy now, pay later plan, the Truth in Lending Act does not apply. Returning an item purchased on a buy now, pay later plan may be difficult.

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