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As Buy Now, Pay Later Becomes Ever More Popular, a Warning
Plus, a note on a common scam related to your banking information
As Buy Now, Pay Later products grow in popularity, it is important for consumers to understand the potential harms of using these products.
While Buy Now, Pay Later — products such as Klarna, Sezzle, Afterpay, and others — are incredibly convenient, they do carry risks.
These products allow customers to purchase a product now — online or in-person- and pay for it over four installments, usually two weeks apart. So, the customer pays 25% of the product cost upfront and then spreads the next out in three additional auto-deducted payments. Assuming all payments are made according to schedule, there is usually no fee or interest accrued.
Cora Lewis of the Associated Press explains that if the basic terms are not met, Buy Now, Pay Later can be problematic.
Branded as “interest-free loans,” buy now, pay later services require you to download an app, link a bank account or debit or credit card, and sign up to pay in weekly or monthly installments.
Lewis then lays out what happens (or could happen) if you pay late:
But if you pay late, you may be subject to a flat fee or a fee calculated as a percentage of the total you owe. These can run as high as $34 plus interest. If you miss multiple payments, you may be shut out from using the service in the future, and the delinquency could hurt your credit score.
There’s also the risk that consumers may take on too much debt — and the providers may not stop that from happening.
Because there’s no centralized reporting of buy now, pay later purchases, those debts won’t necessarily appear on your credit profile with major credit rating agencies.
That means more companies may let you buy more items, even if you can’t afford them, because the lenders don’t know how many loans you have set up with other companies.
Centralized reporting would lead to stronger underwriting — meaning customers with several outstanding BNPL loans may have to wait until some are paid off to use the services again. That would be a good thing — preventing customers from becoming overextended or taking hits to their credit score.
Inflation Takes a Toll
Buy Now, Pay Later has become widely accessible at a time of rising inflation. This means customers can manage cashflow with BNPL products. But rising inflation also makes it more difficult to pay the loans back over time.
One other note: Some BNPL providers are reporting a rise in the use of their products for things like groceries and gas. This may indicate that current economic conditions are putting a strain on the basic family budget.
And it turns out, managing multiple BNPL loans is problematic for a significant number of consumers.
One survey indicated:
32% of Buy Now Pay Later plan users have had to skip paying an essential bill such as rent, utilities or child support in order to make their payments. Even after that, 30% report that they’ve struggled to make their payments.
The bottom line? Access to small dollar credit is generally a net positive. However, consumers should be aware of the risks — especially as the current credit reporting/underwriting system catches up to the buy now, pay later reality.
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Regions Warns Customers of Texting Scam
Regions Bank is alerting customers to what it calls a “common” scam whereby nefarious characters attempt to access a customer’s banking credentials via text message.
Here’s more from a Regions email alert:
If you receive a text message asking for banking credentials or personal information, it may be an example of smishing. This popular new scam attempts to fraud by text message. It may be someone claiming to represent your bank, a utility company or a big-box store.
Regions notes some key signs that could indicate a texting scam:
Letters that should not be capitalized
A link that doesn’t look right — hover over links to
view the URL before clicking
Requests to provide or update personal or
financial information, including passwords
If you receive a text like this, be incredibly aware. If in doubt, call the number on the back of your credit or debit card to determine if the request is legitimate.
Definitely avoid giving out personal information or account information over text.