Buy Now, Cry Later? The Hidden Risks Behind Payment Plans

From Beyoncé concert tickets to shopping sprees at the mall, people use buy-now-pay-later plans to manage their finances now more than ever. However, these payment arrangements can be dangerous long-term.

"If you need to finance something, use a credit card…. a lot of credit card companies have ‘pay over time’ options with 0% interest,” according to finance influencer Haley Sacks. While buy-now-pay-later plans allow consumers to split a large payment into several installments, most don’t offer consumer protection, the ability to build credit, and other features that credit cards do.

A survey by LendingTree showed that 41% of buy-now-pay-later users had made at least one late payment. The study also found that nearly 1 in 4 users have three or more of these loans open at the same time. Piling on loans like these, combined with late payments, can hurt your credit score.

Buy-now-pay-later companies like Klarna are ramping up initiatives to become more like a bank, including offering their own debit card. But that doesn’t compensate for the risks of doing business with financial service providers that aren’t actually banks.

"Gen Z is facing so much inflation, wages have not kept up, and this is a way to actually be able to get things that you want," said Sacks. "But of course, then you're paying the price."