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Is using buy now, pay later options a good idea for everyday items?

Family packing shopping at supermarket checkout
Posted at 11:04 AM, Aug 09, 2022

"Buy now, pay later" installment plans have been popular for people looking to spread out the cost of big-ticket items, even before the rise in inflation.

But now, with rising costs, people are turning to this for everyday expenses.

"If you're using buy now, pay later for your coffee drink or for your gas purchase or your groceries, I would think the concern there is that, you know, those are goods that are consumable and consumable quickly," said Terri Bradford, a specialist at the Federal Reserve Bank of Kansas City. "It's not like you just buy groceries one time and you're done."

She said buy now, pay later could be a strategy if you're stocking up for an entire month at a warehouse store, and then you break that payment up over the course of that same month.

Typically you'll have zero or minimal interest, so you avoid the high interest that comes with a credit card. But you may be buying things you can't afford.

"It seems so innocuous at the time to us, buy now, pay later, and say, 'Oh, you know, it's only $25,'" Bradford said. "But that $25 is there this week and two weeks later, and two weeks after that, and if you do it repetitively with multiple providers, you could really lose sight of what you're doing."

There are dozens of buy now, pay later providers, and Bradford said they don't have insight into what the others are doing. So that means you could take out multiple loans with several different providers, and they don't know it.

There has been discussion within the Consumer Financial Protection Bureau and Congress about regulating the industry. But Bradford doesn't expect that to happen anytime soon.