Across the country, including Oregon, more retailers are offering options to purchase items now and pay later. This may sound like using a credit card, but it is different and the Oregon Division of Financial Regulation (DFR) wants people to understand the benefits and risks that come with it.
How it works
Buy now, pay later is basically an installment loan that is set up over several weeks or months with a set payment amount – think of it like a car loan or other personal loan. If a payment is missed or late, there is often a fee associated.
Things to consider before using buy now, pay later
- Buy now, pay later loans often lack consumer protections
While lenders that provide an open line of credit must obtain a license from DFR, companies that only make installment loans do not need to be licensed in Oregon as long as the loan is for the purchase of a specific product. Also, these loans do not offer the same protections as credit cards if there is a problem with what you purchased. There may be difficulties with returning products, and, unlike credit cards, there are not typically investigations conducted should fraud occur regarding your purchases.
- The debit or credit card used will be set up for auto pay
Generally, buy now, pay later loans have auto pay set up after you make the first payment with a debit or credit card. Also, if you use a credit card when you signed up, you may end up paying interest if you don’t pay the full amount on your credit card statement. Also, some businesses may have other payment alternatives such as payment through their own online portal or by phone. However, consumers may not get to make this choice.
- Buy now, pay later loans carry late fees
Most of the companies that offer these loans charge late fees if you miss a payment. This could block you from future purchases until you make the past payments. Also, the company could send your debt to a collection company if you fail to repay.
These fee structures are different with each company, so it is important you review the terms and conditions before agreeing to make a purchase.
- Buy now, pay later loans can affect your credit score
Buy now, pay later companies generally do not report your payment history to credit bureaus, so if you are hoping to do this to build your credit, that will not happen. However, it could hurt your credit if the company performs a credit check because these inquiries typically reduce your credit score for a short period. In addition, if you are late or missed a payment, the company will likely report the poor payment history to the credit bureaus, harming your credit history.
How you can protect yourself
- It is important to do your research if you are going to use a buy now, pay later option. Know what the payment schedule is and make sure you can afford it. Buying now and paying later can be a tempting option because it seems easy to get an item today without having to pay full price.
“As with anything regarding financial decisions, we encourage people to do their homework,” said DFR Administrator TK Keen. “Know what your payments will be, what you can afford, and make sure you are able to make those payments if you’re going to use a buy now, pay later opportunity.”
- Let us know if you have been misled
If you believe you have been misled or treated unfairly, the division has advocates ready to help at 1-888-877-4894 (toll-free). The DFR website also has references available for you to file a complaint, check for licenses, and much more.
The Consumer Financial Protection Bureau also has information on its website regarding buy now, pay later loans.
Source: Oregon Department of Consumer and Business Services