Holiday shopping: Risks of ‘buy now, pay later’ plans

Retailer financing options could have negative impact on your finances

While stores' "buy now, pay later" financing plans sound like a great idea, it's important to understand the financial risks.

When buying holiday gifts for everyone on your list, it can be easy to go over budget -- especially if you end up shopping for yourself, too.

Many stores are offering “buy now, pay later” programs that allow shoppers to pay less up up front. While those programs may sound like a good idea at the time, they could have an impact on your finances.

According to Consumer Reports, typical buy now, pay later financing plans let you put down 25% of the purchase price when buying an item, and then make payments on it over the following six weeks.

About one-third of shoppers have reportedly used this financing option. A survey from Lending Tree found that 62% of those who have used this option have done so five or more times, and 81% of respondents said they would use the financing option again.

“These are businesses, they are not charities. They’re in the business of making money,” said Local 4′s business editor, Rod Meloni. “If they can figure out a way to get you to spend money, even if you don’t have (it), they’re going to come up with that. And that’s what you have here in the ‘buy now, pay later.’”

Related: Scam watch: Biggest holiday scams right now that you should look out for

There can be financial risks to using this financing option. If you miss a payment, there can be late fees and penalties. If things go wrong, it could also hurt your credit score.

“It could hurt your credit report, number one,” Meloni said. “But number two, you could get a late fee, and then say you don’t have the money for the late fee, and then you bounce a check on top of that, or you get hit with another fee. So, now you’re chasing good money after bad, trying to solve a problem that could’ve been solved just by not buying the thing in the (first place).”

Consumer Reports says that terms of the financing plans vary based on the provider. Some will charge late fees or report to the credit bureaus, and others won’t.

Our advice to shoppers: Make sure you’re familiar with the terms of any buy now, pay later agreement before you agree to any terms.


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About the Author:

Hank Winchester is Local 4's Consumer Investigative Reporter and the head of WDIV's "Help Me Hank" Consumer Unit. He works to solve consumer complaints, reveal important recalls and track down thieves who have ripped off metro Detroiters.