Buy now, pay later!
Are these deals for you?
Everybody's seen ads and incentives to "Buy now, pay later!"
or "Six months, same as cash!" or "One year, interest
free!" What are these deals, anyway? Are they legitimate or
some type of scam? When should people consider them? What should
they look out for?
Typically these retail incentives are advertisements
designed to lure buyers into the store. "They're an incentive
on the part of the business to get people to buy things now that
they often can't afford," says Howell Edwards, vice president
of business development at the InCharge Institute of America Inc.,
in Orlando, Fla. "It's not necessarily a scam, but it convinces
some people that they can have these items or luxuries now without
actually paying for them."
The deals are often set up in such a way that you
buy the merchandise -- furniture, electronics, appliances -- and
have six months or a year, or sometimes even longer, in which you
don't have to make a payment. Or you pay no interest on your payments
until a set date. Depending on how the deal is structured, if you
pay the entire purchase off under that contract period, you may
not have to pay any interest. If you don't pay it off, however,
the payments begin, and sometimes along with problems.
"People very rarely pay it off within
that year period," says Trish Lynch, of ClearPoint Financial
Solutions, based in Richmond, Va. "Usually they get that year
with interest free." Then, unbeknownst to many consumers, the
finance company applies interest retroactively, effective from the
date of purchase or delivery, she adds.
If viewed primarily as a marketing ploy
on the part of the seller, whose principal goal is to get buyers through the door,
then it's easier to understand some of the potential traps associated with these
"The one thing consumers need to know is that
most buyers may not be eligible to take advantage of these types
of offers," says Sheila Adkins, associate director of public
affairs for the Council of Better Business Bureaus Inc., in Arlington,
Va. "Oftentimes, merchants require impeccable credit. And sometimes,
even for those who do qualify, the offer is restricted to a particular
model, brand or style and with limited terms."
If these types of marketing campaigns are legitimate, though
rife with possible brambles to get snagged on, what should the average consumer
look out for? What thorns lurk inside this tantalizing bed of retail roses?
First, assuming you qualify, can you afford this item?
Not just now, but later, when the billing starts? "If you can't
afford it now, you shouldn't take part in these kinds of deals,"
says Edwards. "The debt doesn't go away, you're just delaying
it. There's no guarantee what your financial situation will be down
the line or in a year."
Lynch agrees. "A lot of times people are using
these no-interest, buy-now-pay-later deals for things they don't
have to have," she says. "A lot of it is old-fashioned
going back and quantifying what is a need and what is a want. If
it's a want, it needs to wait; it needs to be saved for. They should
only use this type of situation when it's an absolute need."
Secondly, understand what you're getting into. Jay
Seaton, president of the Northeastern Ohio Consumer Credit Counseling
Service in Cleveland, says, "People have to understand all
the rules of the road going into it. The risks are that all the
accrued finance charge potentially is due and payable if you don't
meet the requirements of the contract. That defeats the whole purpose
of 'three months, four months, six months, nine months same as cash.'
That's not the same as cash. That's the major risk."
buyers need to read the fine print in the buyer's contract. Look for answers to
- Do you need to make payments along the
- When, exactly, are payments due?
- What penalties are you
likely to have to pay if you don't follow the contract precisely?
the overall interest rate increase because of the deferral?
- Are there
additional handling fees that have to be paid to defer payments?
aren't aware of the hidden charges and the different things that might be charged,"