If you’ve been shopping online recently, you’ve probably seen the option to pay in monthly installments through services like Klarna, AfterPay, and Affirm. Usually there is no credit check or interest or fees if you pay on time.
This system is good for those who do not have a credit card and need to extend their payments, says Michelle Singletary, a Washington Post personal finance columnist. He gives the example of a student trying to get a computer but who is not eligible for a loan and whose parents are struggling with cash, so it is helpful for the student to pay incrementally with part-time income.
But this is problematic for those who have no control over spending. “Breaking down these small payments makes it seem more affordable. But when you add it all together, it isn’t. … [Companies] you know people will buy more when they think, “Oh, that’s only $ 25 for four times?”
He says sellers know that online buyers may have enough money for just one pair of shoes, but if they can pay in four installments, they may think they can buy three pairs of shoes instead, which means more sales for the Company.
Meanwhile, legal actions are underway around it. A district court in Northern California has filed a lawsuit against Paypal over the Pay in 4 installment plan, and other states have filed class actions against Klarna and Affirm. Singletary says the lawsuits generally claim that companies do not disclose potential bank charges – such as overdraft fees when you don’t have enough funds to make your monthly payments.
He adds that some consumers say they are still billed for items returned, and there is a dispute over who is to make sure that doesn’t happen (buy now, pay later, or seller selling goods). .
Singletary Advice: Save enough money to pay for items in full.
You can also add the goods to the online shopping cart and leave it there for a while instead of paying immediately. This is to see if you really want them.
Singletary reminds people to be especially careful as the world is still emerging from the coronavirus pandemic – people may have returned to work but lost their income and are trying to catch up. Moreover, inflation is at its highest in 40 years. So, with the higher cost of essentials such as food and gasoline to get to work, you better consider optional / discretionary expenses.
“Just think about whether you need it, as you may need this money on your way to something else. Lots of things can happen. “