Whether it’s for purchasing a new phone, or shopping for the latest fashions, Buy Now Pay Later (BNPL) loans have made it possible for consumers to split a large payment into manageable weekly or monthly interest-free payments. But now these loans may come with a catch.
Since April, Affirm has begun reporting its “pay in four” loans to Experian, one of the three major credit bureaus. Whether payments are on time or late, these payments, which are spread out over four pay periods, can appear on credit reports.
Klarna, another BNPL platform, now reports short-term loans to TransUnion, another major credit bureau. However, they don’t currently report “pay in 4” or pay in 30 [days] loans, just monthly payments.
Currently, both credit scoring companies, FICO and VantageScore, haven’t fully incorporated the impact of short-term loans’ impact on credit scores. So for now, on-time payments are on time, and shouldn’t reduce credit scores.
Chi Chi Wu, senior attorney for the National Consumer Law Center, is wary of how BNPL loans will be incorporated into credit scores in the future. “Now, we’re going to tell other lenders when you’ve got these [buy now, pay later] loans. And if they don’t want to lend to someone with a lot of BNPL loans, well now they know.”