![]() There are other potential downsides, including how BNPL uses consumer psychology to affect your decision-making. The bureau said the idea that BNPL extends lines of credit to people who don’t otherwise have that option is false: “In fact, they were more likely to borrow using credit and retail cards, personal loans, student debt, and auto loans compared to non-BNPL borrowers.” Lenders that aren’t subject to the Truth in Lending Act can sell people on all the upsides of a loan without having to bum them out with the downsides.Īllow us to bum you out with the downsides.Ī report from the Consumer Financial Protection Bureau found that, compared with someone who didn’t use BNPL financing, the average BNPL borrower was more likely to have a lot of debt, more likely to have delinquencies on their credit report, more likely to carry a balance on their credit cards, and more likely to use payday loans, pawn shops and account overdrafts. The Truth in Lending Act is a federal law that dictates how lenders have to treat customers, including making it easy to understand all the potential fees and interest charges on a loan.Ī spokesperson for the BNPL lender Affirm said, “All Affirm consumers to whom credit is extended receive TIL disclosures, which helps ensure that consumers receive clear and consistent information.” Affirm added that it “responsibly extends access to credit” and that its business model doesn’t include compounding interest, late fees or “other junk charges.” So they all put it just below the threshold.” “The Truth in Lending Act kicks in at five installments. “It’s all to avoid the Truth in Lending Act,” he said. Chang, an associate professor of finance and business economics at the USC Marshall School of Business. That number isn’t a coincidence, said Tom Y. ![]() Like every other lender in the BNPL space, Apple Pay Later loans are spread out in four installments. ![]() Take control of your finances with this eight-week newsletter course. Newsletters Sign up for Totally Worth It, and be your money’s boss credit bureaus starting this fall, which could help borrowers build credit through on-time payments. And the company says it plans to start reporting Apple Pay Later loans to U.S. Loan recipients will get notifications about upcoming payments, so there’s less chance of being caught off guard when payments go through. Borrowers have to link a debit card to make repayments, so they can’t get further into debt by paying off one loan with another (e.g., a credit card), a criticism the industry has faced. A marketing professor told the Atlantic that in her consumer polling, shoppers said using a credit card makes them feel guilty, but they made no moral distinction between using BNPL and swiping their debit card for the full amount.Īpple’s announcement of the service touted its benefits: “Apple Pay Later was designed with our users’ financial health in mind, so it has no fees and no interest, and can be used and managed within Wallet, making it easier for consumers to make informed and responsible borrowing decisions.”Īnd it does appear to have some benefits over competitors: Apple showed off a slick interface that lets users manage their loans and view a calendar of upcoming payments. You’re presented with the option to pay in full, or to split your purchase into installments with no interest. “Buy now, pay later” loans, also known as point-of-sale financing, typically appear as an option at online checkout. (Diane Bondareff / AP Images for Secret Deodorant)
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