HUNTSVILLE, Ala. — Any item seems more attainable when you know you can pay for it in four easy installments - without any interest.
Buy Now Pay Later apps have seen increased use since last year - and financial experts are concerned.
Matt Schulz, the Chief Credit Analyst for Lending Tree, says that buy now pay later loans have absolutely exploded on the scene in the last couple of years to where now you basically can't go to an online retailer without being offered one of their services.
Buy now pay later loans are pretty similar to regular ones; you have to pay the money back or it'll negatively impact your credit score.
Schulz said, "What's concerning is that a lot of people are paying late with these loans and a single late payment can really do some damage to your credit score and cost you some real money."
The credit bureau is still trying to figure out how to handle these buy now, pay later apps.
They're safe to use... If you use them responsibly.
Schulz added, "If you handle your business, a buy now pay later loan isn't really going to impact your credit score, but if you slip up and you pay late, or you end up not paying the loan all together, then it can impact your score."
What is 'Buy now, Pay Later?'
A popular payment system is gaining popularity amongst millennials called "Buy Now, Pay Later."
"Buy now pay later is just a short-term financing system that allows consumers to make the purchases and pay for them at a future date typically interest-free," said Alabama A&M University College of Business and Public Affair Professor Dr. Qian Ruby Shen.
Dr. Shen says this payment system is a bit different than a layaway plan.
"Buy Now, Pay Later is typically allowing customers to get the stuff immediately," said Shen.
She says consumers who typically sign up for this plan pay about 25% of the total purchase per month, equaling four total payments. Some merchants using this system include clothing, small appliance and cosmetic retailers, not just big-ticket items.
"It can be friendly with those people who are concerned with low credit history, or low score, or no credit history at all," said Shen.
Purchases are mostly made online and can be paid with a credit or debit card.
This system does have some flaws though. For instance, if you miss a payment, you could incur a large late fee, which in turn could affect your credit score. It also makes it challenging to make a return.
"The providers and the merchants - sometimes they don't communicate, or there's a delay in the communication," said Shen. "So, when you return the merchandise to the store, retailer, and they may not reflect the payment bills."
Shen went on to give some advice on who should take advantage of this system:
"If the consumers are really savvy about their money, and the ones who have a given cash flow monthly, go for it! If your - budget has been tight already and you just want to postpone the payment for the items purchased - probably don't do it."
Nixon Norman, FOX54 News.