BUYER BEWARE ALERT: NEW YORK DEPARTMENT OF STATE’S DIVISION OF CONSUMER PROTECTION ISSUES WARNING TO SHOPPERS OPTING FOR BUY NOW, PAY LATER FINANCING AHEAD OF BUSY HOLIDAY SEASON

The New York Department of State’s Division of Consumer Protection today shared tips to help New Yorkers navigate Buy Now, Pay Later financing during the holiday season. Buy Now, Pay Later (BNPL) has grown in popularity in recent years as a financial tool. BNPL is a payment option that allows consumers to make purchases and defer payments over time, typically in installments, rather than paying the full amount up front. Today, consumers are financing electronics, furniture, travel, clothing, and even their groceries, lunch, or takeout dinners through BNPL, and many are falling behind on their payments.

“Don’t get caught in the revolving door of debt this holiday season. Buy Now, Pay Later is becoming more and more common online, and consumers are using a variety of payment methods that can make buying easy— but before they know it, the debt is growing and hurting their financial health,” said Secretary of State Walter T. Mosley. “The Division of Consumer Protection has important information and tips for those using this payment method to avoid falling in financial traps that some of these exploitative practices can bring.”

While BNPL offers convenience, it carries significant risks including debt accumulation, encouragement of impulsive purchasing, and promotion of overspending. That is why it’s important to use BNPL responsibly and avoid potential pitfalls. 

WHAT YOU NEED TO KNOW ABOUT BNPL FINANCING:

BNPL can lead to overspending and impulse purchases: BNPL services have been marketed as a convenient way to shop by breaking up payments for a purchased item, instead of paying up front in full. They are typically interest free if paid within the specified time frame. However, despite the positive marketing and convenience, this is still debt. A recent article from the Journal of Retailing stated that BNPL increases spending – consumers spend more using these services when compared to credit card use. When offered easy access to credit, debt often piles up and defaults begin to rise.

BNPL appeals to Young Adults: The use of BNPL is trending higher than ever, with younger consumers having the highest usage rate. BNPL loans can be useful in times of necessity as long as payments are made on time and completed within the specified interest-free time period. General convenience is the top reason cited for using these services, but it is important to remember that while timely payments on short-term loans are interest-free, BNPL can build a habit of overspending with money you don’t have. Additionally, long-term installment plans often come with high interest rates ranging from 10-30%.

Consumers can stack loans across multiple platforms and accumulate debt: A study from the Consumer Financial Protection Bureau revealed that that over 60% of consumers using these services have multiple loans. There’s been a shift among consumers from financing big ticket items to financing small ticket items. Consumers are making several small purchases that combine into a very large monthly bill.

Missed payments can result in high interest rates or late fees: Some BNPL providers charge penalty interest rates or late fees for missed payments, which can quickly increase the overall cost of the purchase. Additionally, missed payments may be reported to credit bureaus, potentially impacting a consumer’s credit score.

TIPS TO AVOID A BNPL FINANCIAL TRAP:

• Read the payment terms: Carefully review the terms and conditions including payment schedules, interest rates and fees.
• Review your budget and plan your payments in advance to ensure you can follow the payment schedule: If you have multiple payment plans, ensure you keep track of all the plans and create a budget for these multiple plans. Gain an accurate and holistic view of your ability to repay the debt.
• Monitor your accounts and make timely payments: Keep track of all your BNPL accounts and payment schedules. Automate payments so you don’t miss an installment payment.
• Practice intentional buying: Impulse buying is an easy trap to fall into, so it’s important to practice self-care by being intentional with your money, budgeting wisely, not overcommitting and protecting your financial health.
• Understand how BNPL may impact your credit: Every BNPL lender is different, so carefully review the terms before and know if it can impact your credit score. BNPL loans are typically easier to qualify for than other lines of credit, so securing and making on-time payments is important. If the loan is not paid in full, it may negatively impact your credit history.

About the New York State Division of Consumer Protection

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The New York State Division of Consumer Protection provides voluntary mediation between a consumer and a business when a consumer has been unsuccessful at reaching a resolution on their own. The Consumer Assistance Helpline 1-800-697-1220 is available Monday to Friday from 8:30am to 4:30pm, excluding State Holidays, and consumer complaints can be filed at any time at dos.ny.gov/consumer-protection. The Division can also be reached via X at @NYSConsumer or Facebook.