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Buy-now, pay-later offerings are growing. So is concern

Late fees. Interest charges. Spiraling debt. The benefits of BNPL are real, but so are the risks.

“You can get yourself into trouble. The small amounts are a big concern. You do that five or six times, and the small amounts become big,” said money manager Chantay Horne.Pat Greenhouse/Globe Staff

Gabriella Flores is living the “buy-now, pay-later” dream. Or is she?

At 23, with a job as a student success coordinator at a local university, she doesn’t have a ton of money. But now, when a pair of Nikes beckons, or she sees a carry-on bag that’s her “vibe,” she can indulge thanks to the hottest trend in the payments game — reverse layaway plans that let shoppers get their goods now and pay them off in bite-size installments.

“Let me Klarna this bbl,” Flores tweeted recently, “Klarna” being a major player in the “buy-now, pay-later” sector, and “bbl” being — of course — a Brazilian butt lift.


The problem? “One hundred percent of the things I put on Klarna or Afterpay are things that I don’t need,” she said, sounding not unhappy. “I know I should be saving.”

People have long financed purchases, of course — cars, houses, and in the 1800s, farm equipment, sewing machines, and other necessities.

But the trendy modern version known as BNPL has exploded lately, thanks to a combination of proliferating installment-plan offers and a buying frenzy during the pandemic, as people stuck at home turned to online shopping in hopes of snatching a bit of joy.

BNPL plans have become so ubiquitous —and easy to use — that not only are they fueling impulse shopping, but the payment method is particularly attractive to people who can’t qualify for a credit card, and by definition are already financially vulnerable.

BNPL offers typically require a 25 percent down payment and come with no initial fees or interest charges. And because you can split up the payments, even for very modest purchases, sometimes it can feel as if you’re spending almost no money at all.

Go to Macy’s online, for example, put a $16 baby blue plush coat for a 3-month-old in your cart, and get an offer to pay in four easy, interest-free payments of $4.


BNPL can also make splurges feel less so. At Adidas, crave-worthy cropped hoodies can run $65 or more. But put one in your cart, click on the “pay over time” link, and the come-on appears: “Want to spread out the cost of your order with adidas?” it coos.

With the holiday shopping season upon us, and BNPL options available at an expanding number of retailers, concern is mounting.

“You can get yourself into trouble,” said Chantay Horne, a money management expert in Sharon. “The small amounts are a big concern. You do that five or six times, and the small amounts become big.”

“People have been feeling so down lately and so deprived they’re even more at risk of being pulled in,” said Lovern Moseley, a psychologist at Boston Medical Center.

With predictions that consumers will make almost $100 billion in retail purchases using BNPL payment methods in 2021, the headlines are full of warnings.

CNBC: “The ‘buy now pay later’ trend could be the next hidden source of consumer debt, analysts warn.” (Aug. 10)

Credit Karma: “72% of Americans saw their credit scores drop after missing a ‘buy now, pay later’ payment, survey finds.” (Feb. 8)

Consumer Reports: “The Hidden Risks of Buy-Now, Pay-Later Plans.” (Feb. 14)

No one wants the downer of worrying about a financial spiral when you can buy a $135 pair of Birkenstocks for four easy payments of $33.75.


But the risks are real. “Depending on the type of plan you use, you may be subject to fees and interest charges if you don’t make the payments on time,” Consumer Reports warned. “You also may have trouble getting a refund for something you’ve purchased, even if it’s defective or otherwise unsatisfactory.”

Analysts at Fitch Ratings, a credit rating agency, have also issued a warning: “BNPL users may find themselves unable to afford the periodic repayments and may turn to credit cards or other forms of high-interest debt to repay BNPL debts,” they wrote.

Boston bankruptcy attorney Ira Grolman said he sees Affirm and other BNPL companies on the list of creditors compiled by the vast majority of bankruptcy clients he works with.

“People get caught up in the fervent excitement of buying,” he said.

Horne sees danger in what she calls the “only” concept.

Her clients, she said, too often think, I “only” have to pay $25 for this $100 item, referring to the first installment. “They are not thinking about the big picture — the other $75 they are going to owe.”

Horne spent more than 20 years working in banking and finance and in 2019 left to start a wardrobe consulting firm, Dress Me Up Diva. During the pandemic, with so many people at home shopping online without understanding the consequences, she added financial education to her offerings.

“A lot of my clients have bad credit, so these services are appealing to them,” she said. “But it’s too easy to make a purchase.”


If you use BNPL at multiple sites, she noted, pretty soon you’re “only” paying $17 or $23 on a lot of things — and that adds up.

In Mansfield, one of Horne’s clients felt the dark side of Klarna after engaging in a Macy’s shopping spree last Christmas that her bank account couldn’t cover — not even when it was broken into installments.

What the client thought was smart shopping left her with multiple “insufficient funds” fees from her bank and late-payment fees from Klarna, leading to a $250 hole.

“I felt like I had no control over what was happening,” said the woman, 31, a human resources employee at a law firm, who asked to remain anonymous.

At Centerpoint Advisors, a wealth management firm in Needham, Ashley Agnew works with young adults who have gotten into trouble as installment payments come due.

“We are seeing [buy now, pay later] being misused for concert tickets, a handbag you can’t afford in the first place, new home furnishings,” she said.

Status-conscious young professionals without great credit — but with robust fashion and leisure needs — are BNPL’s target customers, she said. “This is the same group of people who were raised on instant gratification.”

Beth Teitell can be reached at beth.teitell@globe.com. Follow her @bethteitell.