Buy Now Pay Later Apps: Should you try them?

Taylor Carson-Wisor
February 5, 2020

A buy now pay later shopping app allows users to defer the costs of their offline and online purchases by using a third party organization to purchase the goods they want. In return, the user agrees to repay the cost of the goods to the third party along with any fees that they may incur through use of the service or via delayed payments. In essence, buy now pay later apps act as invoice managers for participating businesses while giving shoppers a pay later service and a way to own something they don’t necessarily have the money to afford at the moment. Unfortunately, this can lead to vicious debt cycles similar to those caused by payday loans or payday advance apps.

The benefit of buy now pay later apps is that it widens the available customer base for businesses by allowing purchases that were once out of reach to be divided into installment payments, similar to a loan installment plan. This allows users on the customer end of the app to make the purchases they desire during their shopping experience while minimizing harm to their monthly budgets by reducing the up-front costs of a good versus single payment options.

For instance, a user may need to purchase a new love-seat sofa for their apartment, and this purchase falls outside of their standard monthly expenditures. Instead of spending $500 in a single payment, the user can elect to instead make the same purchase through a buy now pay later app and issue four more reasonable weekly or monthly payments of $125.  It also allows businesses to forego the cost of offering their own layaway plans and losing money on customers who don’t complete payments, as well as minimizing the hidden cost of harming the social dynamic between their customers and the business itself through money collection practices. The negative is that consumers spend money they may not be able to afford. If that happens and the consumer needs a loan, Possible Finance is a better option than payday loans, payroll advance apps, and bank overdrafts. You can get up to $500 in minutes and repay over time, building credit history along the way. 

We will review five popular buy now pay later shopping apps in the market today.

 

Klarna

Klarna is now one of Europe’s largest banks and provides payment solutions for 80 million consumers across 190,000 merchants in 17 countries. With the Klarna app you can pay later with thousands of participating businesses on the app, with no automatic interest or fees for select users. Some participating merchants may include a fee for using Klarna, similar to how businesses who work with delivery apps charge a delivery fee - the service fee then passes to the user. Klarna also allows users to purchase a good and return the purchase if they dislike it with participating vendors. If a user doesn’t like the items they purchased through a vendor on Klarna, the app will assist them with reporting the returned goods. Automatic payments are withdrawn from the user account on the dates that payments are due.

Klarna offers two payment structures, slice it and pay later. Slice it allows users to pay Klarna in four installments over a six week period. Pay later lets users make their purchase and receive an invoice for the total amount 30 days later. For users that qualify, Klarna offers zero-interest financing for purchases. Users who don’t qualify will face interest rates that range from 0.99% - 19.99% depending on how Klarna evaluates the users credit worthiness. A $10 fee will be added to the user's account for a late payment. Klarna offers 24/7 customer service and a 14 day return policy.

Klarna will perform a soft credit check on their users when they elect to pay later to ascertain the trustworthiness of the user and their historical repayment activity with other lenders. A soft credit check does not temporarily lower your credit score but if you have bad credit, you might not approved. The app offers Face ID, Touch ID and PIN Numbers as forms of user-security that users can opt to include in their app experience to protect their card use if their mobile phone was lost. Klarna offers web and phone customer support for issues their customers need assistance with as well (you can find their mobile phone number on the website).

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Afterpay

With Afterpay, users can shop now and pay later in four equal installments of their purchase total, made every two weeks until fulfilled. Users can only make purchases with participating vendors, of which there are more than twelve thousand. Users will be instantly approved or declined for purchases they’d like to make - however the catch is that approval decisions are made on a per-purchase basis rather than an overall assessment of the user’s account. This means that user’s may find themselves getting declined for a purchase and approved for another one just an hour later. Afterpay accounts for this by making it so that their algorithm is more likely to approve user purchases for those accounts who have used Afterpay before and made their payments on time.

Missing an installment will result in a $10 charge and if you fail to make the repayment within a week, another charge of $7 will be issued to the user. Failure to make on-time payments under the payment schedule on a $100 purchase can ultimately lead to additional costs of $68, so there are concerns that Afterpay not only normalizes debt, but can contribute to debt cycles against its user base. There is no credit check performed on users, and Afterpay won’t affect the user's credit scores. However, users who fail to make their payments on time may find their credit score impacted by Afterpay reporting negative accounts to the credit bureaus. Since Afterpay doesn’t report positive activity either, the app is credit neutral, but only so long as payments by the user are timely.

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Sezzle

Along with the other buy now pay later apps, Sezzle allows users to make purchases from participating vendors with their service. Users have to make an account, and once verified will receive an instant approval decision on their purchasing ability through a soft credit check. Since Sezzle uses a soft credit check, the user will not experience a hit to their credit even if they are not approved. Sezzle does not have a credit limit on their user’s purchases and instead uses a unique algorithm that assesses each user’s purchasing permissions based upon their Sezzle payment history and purchase request activity. Users will pay for the first of the four installments of their purchase at checkout, and the other three every two weeks over a six week period. Sezzle allows users to complete payments in advance if they would prefer so that they have more control over the way the Sezzle algorithm evaluates them for other purchases the user may wish to make rather than waiting six weeks to complete payments.

Purchase returns are up to the retailer the purchases were made from and not Sezzle, but if a return is issued, Sezzle will credit the amount to the user’s account. Users are charged a $10 fee for failed payments but users can have the fee waived if they are able to still complete the payment within 48 hours of the failed payment. Sezzle also gives their uses a free reschedule payment ability for each individual order so that users can avoid late fees if they have low account balance issues. In addition to the free reschedule ability, Sezzle allows its user base to purchase two additional rescheduled payments for $5 each time.

Sezzle performs quarterly and yearly security audits in order to guarantee the safety of their user’s personal information. Sezzle is currently certified at Payment Card Industry Level 1, the highest level of security compliance. Unfortunately, although purchases on Sezzle are made in installment payments, the app does not affect your credit score since payments are not reported to the credit bureaus.

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Quadpay

Users who choose to utilize Quadpay may also split their purchase into four equal payments at the point of purchase. Quadpay performs a soft credit check and offers their users an instant approval decision on the purchase. Users can make purchases with their credit card on any participating Quadpay vendors. If users have decided to pay using a VISA card, they can also seek approval decisions on purchases with any online retailer that accepts payments from VISA cards.

Quadpay requires users to pay for the first installment of the purchase up front and users will pay for the other three installments over the next six weeks. Users are charged a $7 penalty fee on the first day they are late on their payment and an additional $7 if the payment remains unpaid for a full week. Quadpay does report late payments to the credit bureaus and can negatively affect user’s credit scores. Therefore, users should try to pay on time. There are no interest charges or hidden fees for on-time payments, and Quadpay does allow users to schedule their payments earlier and change their payment plan if they would like to pay off their purchases sooner. Only in exceptional cases will Quadpay allow users to schedule their payments further out, and users have to contact Quadpay’s customer support in order to do so. Users are allowed to have a maximum of three active orders at a time with Quadpay.

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Perpay

Perpay is an app that offers loan installment contracts to customers so that they can purchase goods now and break the payment into manageable pieces to pay over time. There are payment reminders as payment dates get close. The number of payments available to Perpay users range from as few as four to as many as twenty-six. This allows users to make large purchases with no interest, no fees, and no credit checks. Perpay operates solely by receiving payments through payroll direct deposit. They do not accept payments from bank accounts, credit accounts, debit or credit cards.

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Conclusion

While buy now pay later apps allow customers to attach their credit cards to their accounts in order to make automatic payments, Possible highly recommends that if you choose to use these services because of a tight financial budget, that you set up automatic payments with a debit or credit card. While a service provider may not charge users an interest rate, your credit card will. While you may be able to make payments to the buy now pay later app with a credit card, if you cannot pay off the credit card itself in a timely manner, the costs will add up.

For customers with less strict monthly budgets, using a credit card to make payments to buy now pay later apps can be a good way to demonstrate positive borrowing history with your credit card provider, so long as you consistently clear your balance each month. Paying minimum payments on a credit card is probably not worth it. Getting a personal loan for a large purchase is another alternative. You should think of a buy now pay later as one of many financing options you can access when you want to purchase on credit.

Lastly, if you don’t have the money to afford what you’re buying, using a buy now pay later app won’t make it any better. If making the payments cause you financial difficulty, don’t buy the product or service in the first place! Your long-term financial health should always come first.

Taylor Carson-Wisor

Tay enjoys nonfiction writing, having formerly been a contributing member on a policy research consulting team and having worked on political talking points for candidates for public office. His passion for financial fairness and advocating for underserved communities inspires him to write for Possible.

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