Surge of Buy Now, Pay Later purchases — even for groceries — worries economists

Rising prices have made Buy Now, Pay Later installment plans increasingly popular for small-ticket purchases, such as groceries, worrying economists and consumer advocates, CNN reported July 6. 

Eight things to know: 

1. Buy Now, Pay Later plans split a purchase into four or more installment payments over a period of weeks or months. They typically offer zero or minimal interest and often come without a credit check.  

2. To make money, Buy Now, Pay Later plans charge merchants between 1.5 percent and 7 percent of the transaction price. 

3. These transactions are estimated to be at least $100 billion annually, and analysts say that number could rise to between $1 trillion and $4 trillion within a few years, according to the report.

4. Critics of Buy Now, Pay Later plans say the increasing use of these services, coupled with a lack of transparency and little regulatory oversight, leaves them wondering how much debt Americans are compiling. 

5. There is no publicly available database of Buy Now, Pay Later-related debt levels, transaction volume, delinquency rates, and fees and interest charges.

6. One significant downside to Buy Now, Pay Later services is the possibility of getting into debt unknowingly, Terri Bradford, a research specialist in payment systems for the Kansas City Federal Reserve, told CNN.  

"So the possibility is that you could, in your mind, think of everything that you’re buying in those four installments and, as a result, take on more debt than you would if you had to pay for them in full each and every time," Ms. Bradford said.

7. Typical Buy Now, Pay Later users are younger and have credit histories considered to be subprime, Harvard Kennedy School research fellow Marshall Lux told CNN. These users often choose the services to avoid credit card interest and to make purchases that do not fit their budget.

8. The three major credit bureaus said they will start including Buy Now, Pay Later activity on credit reports but still need to rely on the providers for that information, according to the report.

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