This week’s theme on the Retirement Quick Tips Podcast is: Top 5 Money Traps To Avoid

Today, I’m talking about the Buy Now, Pay Later money trap. 

On QVC’s website, they have a beautiful aqua blue Kitchen Aid stand mixer with a tilt head and a glass bowl. It’s gorgeous and I want it, but I don’t want to pay the $399 price tag on it. 

Enter buy now, pay later. I can pay instead with 5 installments of $79.80 with EasyPay. There are no interest charges and I can spread the cost out over monthly installments, with no extra fees or charges? 

This isn’t unique to QVC or expensive stand mixers. If you pay attention to virtually anything you buy online these days, you’ll almost always see this as an option through a service like EasyPay, AfterPay, or Klarna, or others like it even for a $20 item.

Seems like a good idea to not have to pay for something up front all at once, but these ubiquitous buy now, pay later services come with some risks that are concerning, making these a definite money trap. 

According to a recent article in the Washington Post, here are just a few problems with these alternative payment apps: ““Buy now, pay later” is largely unregulated, and substantial issues have emerged. Last year, 10.5 percent of users were charged at least one late fee, and several signs indicate delinquencies continue to rise in 2022. Users complain that it is difficult to get refunds and issues can ding their credit score in ways they didn’t realize. But the biggest concerns are that many of these financial technology companies are not doing a sufficient job assessing people’s ability to repay and are using shoppers’ data to suggest more products to buy — on credit.”

The Financial Health Network took a closer look at who’s using these services, and found that “nearly 70 percent of users say they spend more using these products than they would have otherwise.”

If you frequently use one of these apps, it becomes complicated to track how many are outstanding, when your next payments will get deducted, and it’s easy to get overextended. 

“People using these products are more likely to experience “rapid increases” in bank overdraft charges and credit card interest. That’s because “buy now, pay later” companies typically have shoppers use autopay when they sign up, meaning they link a debit or credit card to the account.”

Another sneaky trap with these apps is that these companies are beginning to shift their business models away from earning a fee charged to the retailer to collecting user data and marketing products to them.

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance