'Be extra careful' using services like Afterpay and Affirm to shop this holiday season, experts say: Here's why

"These programs have a way of making money seem less 'real' at the point of purchase. ..."


More than 40% of American shoppers have used Affirm, Afterpay, or another "buy now, pay later" service, according to a Credit Karma/Qualtrics survey. Unlike buying on layaway, where you set up a payment plan and get the product after you've paid the full amount, these services allow you to take the product home now while only paying for part of it upfront. Some stores, like Walmart, have gotten rid of layaway altogether and replaced it with a BNPL service.

During the holiday season, the second biggest consumer spending event after back-to-college according to the National Retail Federation, BNPL services might be extra appealing as you start gift shopping. Using them could lead to overspending, though, says Kristin McGrath, shopping expert at RetailMeNot

"Be extra careful around the holidays when you're making many purchases at once across many retailers," she says. "These programs have a way of making money seem less 'real' at the point of purchase, but buyers will get a reality check in the new year."

Here's how to responsibly use buy now, pay later services, according to experts.

Read up on BNPL fees

"It's vital that consumers understand the services they are using," McGrath says. "Some involve interest, some involve fees, and there are also various late-payment penalties."

Understanding the fine print isn't always easy to do. The average American reads at a seventh grade level, but the terms and conditions of the most popular services, including Square, Affirm, and Klarna, require at least an 11th grade reading level, according to a study by Uplift Legal Funding.

Still, a quick Google search of the BNPL service name and the word "interest" or "fees" can lead you to the information you need. Affirm, for example, sometimes has 15% APR interest rates. Afterpay does not charge interest, but there is a fee for missing a payment.

Use BNPL for a 'budgeted-for, big-ticket purchase'

Holiday sales are projected to increase between 8.5% and 10.5% from last year, according to the National Retail Federation. And 41% of shoppers are willing to go into debt to fund their holiday shopping, according to a recent CreditCards.com survey.

Using a BNPL service might seem like a good way to stretch your dollar for now, but remember that you will eventually have to pay for everything in full.

"To use these programs safely, shoppers might consider putting a planned, budgeted-for, big-ticket purchase on a buy now, pay later plan to give themselves some breathing room," McGrath says. "But putting a slew of impulse buys on these plans throughout the season can get dangerous."

Putting a slew of impulse buys on these plans throughout the season can get dangerous.
Kristin McGrath
shopping expert at RetailMeNot

Think of BNPL as a loan

Before opting into a BNPL service, there are some questions it's smart to ask yourself, says Simon Blanchard, a Beyer Family associate professor at the Georgetown University's McDonough School of Business whose research focuses on consumer psychology and consumer decision-making. "Would you make that purchase independent of how you pay? Would you make this purchase in cash? Do you need this or not?"

In other words, if you had to pay in full at the point of purchase, would you be willing to put down the money? Or would you forget about the product altogether?

For example, Blanchard says, if you need a washer and dryer today, you'll probably still need those six months from now. Not having the cash upfront will not diminish your need for the product. For smaller purchases, like an expensive dress, though, this might not be the case.

"They don't look like loans but they are loans," he says. "Do you have to take out a loan for a pair of shoes you're buying?"

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