Buy Now, Pay Later? Why Installment Payment Plans Are Hurting Your Wallet

by | Mar 30, 2022 | WWC WorthWhile Reading


What Are Installment Payment Plans?


A digital installment plan breaks up your bill into smaller chunks or installment payments that you pay over a set amount of time.


Unfortunately, the use of installment payment plans has skyrocketed. It was up 215% in the first two months of 2021 compared to the year before!1 Over one-third of Americans have used a buy now, pay later (BNPL) service, and most said they used it because they either couldn’t fit the purchase into their budget or they didn’t want to pay interest on a credit card.2 


In 2021, Ramsey Solutions’ State of Personal Finance found that the majority of those who recently used a BNPL service missed a payment. And while the younger consumers are more engaged with these services, so are the more affluent households. More than 35% of households making more than $100,000 have used a digital installment plan—they’re also more likely to miss payments. Eighty-two percent of shoppers making more than $100,000 a year admitted to missing a payment.4


What Are Some of the Biggest Digital Installment Brands?


If you try to buy anything online these days, you might be greeted by one of these heavy hitters in the world of easy payments: Afterpay, Affirm, Klarna, Sezzle, Zip, and Uplift.


Most of these buy now, pay later companies give consumers the option to “pay in four” by making four interest-free payments every two weeks.


What Can You Buy With an Installment Payment Plan?


Here are just a few of the popular buy now, pay later items: clothing, concert tickets, cosmetics, electronics, furniture, groceries, gym equipment hotels, flights, and more!


Do Buy Now, Pay Later Plans Make You Spend More Money?


Afterpay says that retailers who use their service see a 20% increase in consumer purchases and a 25% increase in the average order price.18 Klarna actually promises even more, with customers buying 30% more and the average order price going up by 41%.19 And not to be shown up by its buddies in the business, Affirm boasts an 85% increase in upgrades, bundling and add-ons!20


According to the numbers, people spend more when they use installment payments like these. And it makes sense. If you get to the checkout online and see you can get $125 worth of items by paying just $31.25 now, then you might go ahead and add a few more items you had your eye on—why not?


No wonder 78% of Americans are living paycheck to paycheck.23


Installment Payments Are Just Another Form of Debt


Absolutely. And these “easy payments” companies are boasting about aren’t any different. They aren’t a smart way to buy things you want. They aren’t more harmless than a credit card. And they aren’t a fancy way to “budget” for a purchase.


Whatever you do, don’t fall for an installment payment plan—unless you plan to stay broke.


What About Your Credit Score?


While most buy now, pay later companies run a soft credit check on you, they don’t really do much more than make sure you’re over 18 years old and have a phone number and bank account. That means a lot of people get approved but don’t really understand the potential consequences of BNPL.24 This “anyone can use it” idea is a sure way to get a lot of people into trouble—fast. Not only that, more and more shoppers are buying now and forgetting to pay later. And there are consequences for that.


Recently, Experian (the major credit reporting bureau) decided they’d jump in to “offer lenders a wider view of a borrower’s financial obligations.”25 That means they’re starting to record shopper’s digital installment payments from these buy now, pay later companies.  That means if you’re behind on payments, it could hurt your credit score.


Credit bureaus are saying this move could help consumers build their credit scores if they use these digital installments the right way. But here’s the truth: Buy now, pay later schemes are just going to dig you deeper in debt.


So, all in all the its best to stay far away form installment plans and stick to your budget. If you would like to speak with a professional about your financial planning needs contact us here at WWC! We are always happy to help!






This commentary was originally posted by Ramsey Solutions, MAR 18, 2022


**Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.