If you recently made an online purchase, it’s likely that you were given the option to break it up into “four easy installments” or another such arrangement. These aren’t merely financing contracts like you may anticipate when buying gadgets, furniture, or other items that could be too expensive to buy all at once. Instead, when you purchase a sweatsuit online, you might see an opportunity to make “four easy payments of $16.99.”
The fact that the offer is coming from a third party with a deal with the retailer is frequently not immediately obvious. However, choosing the buy-now-pay-later option does not include making regular payments to the vendor. This is a loan. When they choose to break up their purchase into payments, many customers are unaware of this and are also unaware of how buy-now-pay-later (BNPL) loans operate. Additionally, your BNPL loan could have late fees that are excessive compared to the amount borrowed.
The Frequency of BNPL Lending
Purchase-now-pay-later loans are nothing new. However, they have proliferated significantly over the past few years and are now more routinely used to fund relatively inexpensive items.
The Consumer Financial Protection Bureau (CFPB) examined market data for five BNPL lenders for a recent report. These five lenders boosted the quantity of BNPL loans they originated in the United States by 970 percent between 2019 and 2021. From 16.8 million loans in 2019 to 180 million loans in 2021, it is an increase in terms of raw numbers. By 2021, there will be almost one loan for every adult in the US. However, BNPL loans do not break out in that way. Instead, the same borrower may have a number of loans that are paid back in succession or even stack loans from other lenders.
The use of BNPL loans expanded considerably more in terms of money. The total amount of purchases made with these short-term loans in 2019 was around $2 billion. In 2020, that amount more than doubled, and in 2021, it had increased by more than 12 times, to $24.2 billion.
BNPL Loans: Are They Good or Bad?
When you need something right away but don’t have the funds on hand, a BNPL loan may be able to help. The “four easy payments” aren’t usually so simple, though.
First, late fees are typically assessed by BNPL lenders. Even though these fees are normally between $7-8 each late payment, they can add up when compared to the loan’s worth. For instance, if someone borrowed $50 from BNPL to buy anything, they might have to pay $32 in late fees in just four months. In 2021, more than 10% of borrowers paid at least one late fee. And there are other ways a BNPL loan could end up costing you more than you expected.
A lot of BNPL lenders demand that you accept autopay. That means that the lender will make payment attempts whether or not there are funds available, which could result in bank costs and prevent funds from being available for subsequent transactions. If the lender re-presents the charge after the transaction is denied, the issue may get worse.
Another issue with BNPL loans is that they may not show up on your credit record, so they are not taken into account when you apply for other forms of credit, including further BNPL loans. This makes it simple for borrowers to take on too much debt only to discover that making several “easy payments” each month is actually rather difficult.
If you’re thinking about using a BNPL loan, be sure you fully comprehend the terms, are confident in your ability to make the planned auto-payment, and that it’s the greatest financial decision for you. If you have available credit, calculate the costs and decide whether using your credit card would be less expensive than taking out a new loan and a separate monthly payment. Additionally, if at all possible, think about delaying your purchase until you have the money on hand.
Are you drowning in payments you can’t make?
If you’re struggling every month just to make minimum payments on items, then it’s time to take action. Chapter 7 or Chapter 13 bankruptcy could be just what you need to make a fresh start. Contact Law Offices of Terrence Fantauzzi at (909) 552-1238 to talk to a bankruptcy attorney who can help.