This is Viewpoints Explained…
When shopping online, more people are choosing to split their bill into smaller payments instead of paying in full. These ‘buy now, pay later services’ like AfterPay, Klarna and Affirm have blown up in popularity over the last few years.
About 15 percent of Americans have used one of these services in the past year, according to a 2024 federal reserve report. This group tends to skew younger with adults 18 to 29 the most likely to select this option. Usage is also higher among lower and middle-income households and among black and Hispanic consumers. Many of whom have lower credit scores or limited access to traditional credit.
The pitch is simple: split a purchase into four payments over six weeks with no penalty if you pay on time. Some companies, like affirm, also offer longer-term loans that do include interest.
But keeping track of these payment is where people get caught. A 2024 LendingTree survey found that more than 40 percent of users paid at least one bill late in the past year. Buy now pay later companies like Afterpay can charge up to 8 dollars per missed payment while Klarna can charge up to 7 dollars per installment. This added interest can quickly turn a small purchase into a much bigger bill. The other issue is stacking. Multiple payment plans running at the same time can make total debt harder to see and harder to manage. The consumer financial protection bureau has said that this model may soon face oversight similar to credit cards.
As prices stay high and budgets tighten, but now pay later services may feel like a solution. However, the question is whether they’re easing financial pressure or just delaying it.
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