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A12 BUSINESS
Thursday 15 december 2022

The problems with using buy now, pay

later to fund travel

By SALLY FRENCH of Nerd-
Wallet
Book a flight or hotel room
now, and pay it off later?
It’s an increasingly com-
mon trend in travel spend-
ing. Companies like Ameri-
can Airlines , United Airlines
and vacation rental web-
site Vacasa now offer the
option to make reserva-
tions now and pay it back
incrementally over time
with “buy now, pay later”
services.
Between 2020 and 2021,
travel and entertainment People shop for shoes in a Nike store on , Nov. 25, 2022, in New
purchases were the fast- York. People shop for shoes in a Nike store on , Nov. 25, 2022, in
New York.
est-growing segment of Associated Press
the buy now, pay later
phenomenon, according
to a September 2022 re- BUY NOW, PAY LATER made on a debit card,
port from the Consumer Fi- Buy now, pay later can which opens up the pos-
nancial Protection Bureau. entail confusing terms, sibility for overdrafting on
Buy now, pay later is an al- challenges in filing and re- accounts with insufficient
ternative type of short-term solving disputes, and strict funds. One in three buy
credit for online purchases requirements, like required now, pay later users report-
offered by companies in- use of autopay . And since ed overdrafting in January
cluding Affirm, Afterpay it can encourage shoppers 2022, according to a sur-
and Klarna . The shopper to take on more debt than vey from Morning Consult,
immediately gets their pur- they can afford, buy now, a market research organi-
chase and pays it back pay later may sometimes zation. Overdrafts typically
later, typically in four in- do more harm than good, trigger their own fee.
stallments or monthly pay- many experts say. Repaying buy now, pay
ments. LATE FEES later purchases with credit
While buy now, pay later Many buy now, pay later cards isn’t any better, even
has been popular for years services charge late fees, though some do it.
in segments such as ap- typically around $8. Ac- “This practice essentially
parel and beauty, it’s slow- cording to the CFPB, 10.5% using a credit card to pay
ly growing in other areas, of buy now, pay later bor- off other debt is a sign of
including insurance, edu- rowers were charged at inability to repay,” accord-
cation and groceries and least one late fee in 2021. ing to the Center for Re-
travel is outpacing them FORCED AUTOPAY sponsible Lending and oth-
all. Some buy now, pay later er groups in a March 2022
In 2019, just $10 million was loans require autopay, joint report.
spent on travel-related which can be problem- OVERSPENDING
buy now, pay later servic- atic for people who have Buy now, pay later services
es. It grew to $60 million in insufficient funds in their have access to shoppers’
2020 and $800 million by connected payment ac- purchasing data, which
2021, logging an astound- counts, as they could in- can then be used in future
ing 1,233% increase in one cur a late fee from the buy marketing campaigns like-
year and a 7,900% increase now, pay later company, ly encouraging even more
in two. But that growth isn’t as well as an overdraft fee spending. And that’s not
necessarily good. In fact, from their bank. the only type of overexten-
the CFPB warns it’s a trou- According to the CFPB, 89 sion that puts consumers at
bling trend. % of 2021’s buy now, pay risk.
THE PROBLEMS WITH USING later repayments were A 2022 Motley Fool survey
found that reasons to use
buy now, pay later includ-
ed:
● To make purchases that
wouldn’t fit in my budget
(45%).
● To borrow money without
a credit check (21%).
● I can’t get approved for
a credit card (14%).
● My credit card(s) are
maxed out (13%).q