How to avoid debt traps when using buy now, pay later

(InvestigateTV) — Buy now, pay later plans can help people split a purchase into smaller payments, but consumer advocates say using them too often can leave some consumers in over their heads.

Teresa Murray, consumer watchdog at US PIRG, said many people are getting themselves into debt traps.

Many of these plans work by splitting a purchase into four payments, often with the first due at checkout, according to Murray.

Consumers need to understand the rules before signing up, because buy now, pay later plans do not come with the same protections as credit cards, she said.

“Unlike with credit cards, they don’t care what your income is. They don’t care what your ability to repay is,” Murray said. “So, a lot of people have gotten into problems with not realizing the rules. Not realizing that if the buy now, pay later company comes to get money out of their bank account and there’s no money in there, then they get hit with a fee from the buy now, pay later company. You might get an overdraft with just non-sufficient funds because they tried and it’s just a whole mess.”

Murray recommended reading the terms carefully before using one of these plans.

Many buy now, pay later programs do not charge interest if you pay on time. But if you miss a payment, some can charge late fees. And in some cases, you may also owe interest, not just for one month, but for the entire repayment period.

Murray said it’s important to keep track of how many plans you’re using, and when each payment is coming out.

“People should take a hard look at what they’re actually using buy now, pay later and is that a purchase that could wait,” Murray said. “Start with keeping track. If you do it, keep track of it. Know when the payments are going to come out of your bank account.”

Experts say if you do use buy now, pay later, make sure you have enough money in your account before each payment comes out. That can help you avoid late fees, overdrafts or other charges.