Everything You Need to Know About Emerging Buy Now, Pay Later Methods

Your fridge broke. Ugh. What are you going to do now? Of course, you need a refrigerator, but buying one is no small task. If you’re feeling strapped for cash in a time of emergency, there are some new payment solutions — they’re called buy now, pay later methods.

No, I’m not talking about layaway. Buy now, pay later methods are just entering the market. They allow consumers to (unlike layaway) get their item immediately, but pay for it over the course of weeks or months in smaller installments geared to make it more affordable and easier to handle financially. This works especially well for the refrigerator example, because forking over $1000 in the last minute isn’t always realistic.

Your Buying Options

You might have noticed some of these programs when you’re adding items to your cart online. Specifically, AfterPay is one that has made its way into the U.S. market over the last two years, says Amanda Pires, Head of Corporate Communications at AfterPay. Their program sends consumers their desired item as soon as they order it, while allowing them to pay for the item in four installments over a six-week period (one every two weeks). The first installment is due when the consumer orders the item. There is no interest and no fees unless you fail to pay on time (more on that in a moment).

Another buy now, pay later method that’s making its way into the market is Splitit. While Splitit has the same overall goal as AfterPay, it’s methodology differs. Buyers will still get their purchases as soon as they order, but they have the option to finance the purchase in whichever way works for them, says Brad Paterson, CEO of Splitit. Customers get to choose their total timeframe, how often they want to pay, and how much they want to pay in each installment. Splitit places a hold on the buyer’s credit card for the total amount of the purchase and charges them monthly in smaller installments for however many installments they elected to pay.

Okay, So What’s The Catch?

Pires argues that this system can help consumers stay out of debt. If they do not have to lay out all of the money as soon as they need a new item (like the refrigerator, for example), they may be able to stave off keeping a revolving balance on their credit cards and paying interest.

On the flipside, even though these brands promote “no fees,” if you do not keep up with your agreed upon payments, you will owe fees for not paying on time, says Consumerworld.org Founder Edgar Dworsky. And those fees are not insignificant. On AfterPay, there’s a 10-day grace period after each installment is due. Miss that window and you’ll be assessed a fee of either 25% of your order value or $8 — “whichever is cheaper,” says Pires. On Splitit, since charges come right from your credit card, if you don’t pay your bill down on time, you will be charged whatever your APR rate is on the cost of that purchase. Again, neither of these things is small potatoes. So before you enter into an arrangement like this, make sure you can keep up with the payments. Or, take a pass.

As Dworsky notes: “Savvy shoppers don’t buy on time. If you don’t have the money now for the purchase, you should wait until you do.”

With Rebecca Cohen