Don’t get stung by buy-now- pay-later services: ‘It is kind of a recipe for disaster if not managed carefully’

‘Consumers may not fully understand their obligations,’ the authors of a new report wrote

“Consumers may not fully understand their obligations,” the authors of a new report wrote.

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Although they are marketed as having no fees and no interest, some buy-now-pay-later products do include such charges — but it can be hard for consumers to know what they are getting into.

That’s according to new research by Consumer Reports, which looked at major companies’ lending, privacy and consumer-protection policies. The study found that providers of buy-now-pay-later services were not always clear about disclosing late fees and interest, and the authors noted that it can confusing for borrowers to determine which ones have such charges and which don’t. 

“Consumers may not fully understand their obligations,” the authors wrote. “A consumer could, for example, intend to choose a zero interest pay-in-four loan option, but decide that six payments is more suitable, not realizing that the six-payment plan is subject to interest.”

The buy-now-pay-later option — referred to in the payments industry as BNPL — is a new spin on the concept of layaway. It allows consumers to receive their purchase immediately but to divide their payment into installments paid over a longer period with little or no interest — as long as they make the payments on time. BNPL providers include Afterpay, Klarna, Affirm AFRM, +2.70% and PayPal PYPL, +1.43%.

Typically, BNPL payments span six weeks, but some providers also offer longer-term loan products for bigger dollar amounts.

Also read: More ‘buy now pay later’ users are seeing their credit scores drop after they miss payments. But are these two things really connected?

It may be difficult for consumers to keep track of the total amounts they owe BNPL lenders, Delicia Hand, director of financial fairness advocacy at Consumer Reports, told MarketWatch.

“This is a transaction-by-transaction payment and credit product, so ostensibly, I could be using five or six buy now pay later products or 50 different transactions. That is a significant shift to how consumers are obtaining something that is creditlike and using it,” Hand said.

“It is kind of a recipe for disaster if not managed carefully,” she added, noting that the transaction-by-transaction nature of buy-now-pay-later purchasing may complicate matters for consumers who are already juggling multiple bank and credit-card accounts. 

Almost all BNPL providers have more than one product offering: a short-term one that can be paid over several weeks and a longer-term one that can be paid over several months. The Consumers Reports authors said the distinction between short-term plans (most common are the pay-in-four plans that spread out four payments over six weeks) and the longer-term plans (such as monthly payment plans that can stretch out over six months or longer) can be confusing for consumers, even when laid out side by side. 

“It also is not always apparent the exact terms of the BNPL and can seem tricky as far as when exactly you can be charged interest or a fee and how that will work,” one participant in the report said. “It would have been nice if the exact details were more clearly stated as you go through the registration process because to me, it felt like they were keeping their cards close to their hand and not making it obvious to try and take advantage of someone not knowing exactly what they were getting into.” 

Here are details on popular plans for some BPNL companies.


PayPal’s monthly payments plan can stretch over six, 12 or 24 months, with an APR ranging from 9.99% to 29.99%, depending partly on a person’s credit history and their transaction history with PayPal. The borrower is able to see three different APRs based on varying loan lengths when they check out. Some merchants might offer a 0% promotional APR, according to information provided by PayPal. 


Affirm’s monthly product also charges interest, with APRs that range — based on the applicant’s credit — from 0% to 36%, depending on the amount and length of the loan. The monthly payment plan can stretch to 60 months. An Affirm spokesperson said the company makes sure its pay-over-time process doesn’t have any late or hidden fees other than the ones consumers see at checkout. 

“This includes underwriting every transaction before extending credit, giving consumers control over their privacy choices and providing consistent and transparent disclosures at checkout,” the spokesperson told MarketWatch by email.


Klarna offers similar options, with a pay-in-four plan, a plan that’s interest-free and is paid within 30 days, and longer financing options of up to 24 months that charge interest, with APRs ranging from 0 to 29.99%. 

Klarna’s pay-in-four product does not charge any interest but will charge a late fee of up to $7 if a customer is 10 days late in making a payment, according to its website. The borrower’s financial institution might also charge interest or fees. Klarna immediately restricts the use of its services to users who miss a payment. 


Some recently added long-term financing options weren’t included in Consumer Report’s investigation. Those include Afterpay’s options of up to 12 months and Sezzle’s long-term monthly plans for larger purchases. Sezzle told MarketWatch that it also offers pay-in-full and pay-in-two products, which operate similarly to its pay-in-four product, which the report did include.  

If a customer is late in making an installment payment, Sezzle provides a grace period before restricting a user from making additional purchases, the company told MarketWatch. A user who misses a payment must pay a reactivation fee to use Sezzle in the future, Consumer Reports noted. 


Afterpay charges a fixed late fee for its pay-in-four option. The late fees “don’t seem to make up a significant portion of its revenue,” the Consumer Reports team found.

Afterpay didn’t respond to a request for comment from MarketWatch.


Zilch offers a pay-in-four option with no late or hidden fees, and it also has a pay-it-all-now option that gives customers 2% cash back. Both types of payments need to go through Zilch’s virtual card. Online payments made using the company’s Mastercard could incur fees, Consumer Reports authors noted, as its “business model is unclear.”

The commission Zilch gets from merchants when a consumer makes a purchase is passed along to consumers, and spokesperson for Zilch told MarketWatch that although the model is unique, there is “nothing unclear about it.”

“We pass a share of this commission on to our customers in the form of free credit, savings, deals and discounts,” the spokesperson said in an email. 


With Perpay, payments come directly out of a user’s paycheck. The company charges both late fees and interest, according to Consumer Reports, although Perpay says on its website that it will not charge “any additional fees as a result of missed or late payments.” Perpay also offers a digital card.

Perpay did not respond to a request for comment from MarketWatch.


Zip only offers one payment option, a pay-in-four plan. If a user does not pay their total minimum payment in full by the deadline, the company will charge a late fee of up to $7. It will also charge interest. 

Zip did not respond to a request for comment from MarketWatch.