‘Extremely troubling’: Expert warns against using ‘buy now, pay later’ plans for basic necessities
COLUMBIA, Mo. (KMIZ)
Buy now, pay later.
It can seem like a great deal for more than a quarter of Americans living paycheck to paycheck.
Make a purchase today, and split the cost over about four interest-free payments.
The “buy now, pay later” payment plan is growing rapidly in popularity as consumers face higher prices and tighter budgets. Recent data shows nearly half of Americans have turned to BNPL services.
And some statistics are startling experts like Jared Reynolds, CEO and founder of Freedom Wealth Planning in Columbia.
"The fact that it's getting into groceries and gas and just every little bitty consumer purchase online. That's seriously troubling,” Reynolds said.
According to LendingTree, 29% of BNPL users have used the loans for groceries. That’s up from 25% a year ago and 14% two years ago.
Reynold said the deferred payment option was always meant for larger, needed purchases, like in the case of a major appliance breaking.
"Good rule of thumb, if whatever it is you are purchasing is going to be used up before it is actually completely paid for, then absolutely you should not do this," Reynolds said.
Beyond long-term necessities, BNPL is now being used to finance basic necessities like food and transportation. He said short-term relief can cause deeper financial struggles.
“If I'm doing it for groceries that’ll be gone next week and I'm paying for them for the next three months, that's a compounding problem that is only going to get worse, ultimately to the point of default. And now comes all the major late fees, and even some of them, when you default, they will end up switching you to a loan. And the interest rates go as high as 36%,” Reynolds said.
There is something he’s noticed about these services as well. At a time when many people are struggling to make ends meet, BNPL is being advertised more than ever. He views it as predatory lending to a vulnerable population.
“They're embedding it into checkout lanes, like Klarna, Afterpay, Affirm. Gas stations. Fast food apps. And so that is where it becomes extremely troubling,” Reynolds said.
He expects regulation on BNPL services in the near future.
Check back here and tune in to ABC 17 News at 6 p.m. for the full report.
