How Much Does Buy Now, Pay Later Really Cost?
Plus, payday loans pack a punch in Texas
While Buy Now, Pay Later services — like AfterPay and Klarna — may seem convenient, they can wind up being pretty costly.
In fact, Fintech Business Weekly notes that AfterPay is making some pretty big money on late fees. According to the company’s reporting, in the second half of 2021:
Late fees increase 124% YoY, accounting for 12% of revenue vs. 8% in the comparable prior period
Ouch!
This is probably why consumer groups have been warning people to proceed with caution when it comes to Buy Now, Pay Later.
Groups like Consumer Federation of America (CFA) and National Consumer Law Center (NCLC) have said the products are largely unregulated and present potential harms to consumers:
“BNPL products have largely evaded oversight by federal and state regulators,” the groups stated. “Although these products could have a place in meeting consumer needs if they operate as promised, they pose a risk to consumers and should be covered by basic consumer protections.”
U.S. PIRG also noted:
Our findings, based on a review of complaints to the Consumer Financial Protection Bureau (CFPB) and the Better Business Bureau (BBB), show that hidden fees, interest and debt collection problems can harm consumers. We also find that consumers also face problems with customer service.
Additionally, a recent survey showed that more than 20% of consumers who use BNPL later regret the decision.
Payday Loans Charge Big Interest Rates in Texas
Payday loans are a bad deal for borrowers but big money for the unscrupulous legalized loan sharks who make them.
The Dallas Morning News reports that Texas remains one of the worst states in the nation to get a payday loan — or, among the most profitable places to set up shop as a payday predator.
The average consumer in Texas who took out a payday loan was required to pay 527% of the loan amount in the fees and interest over a four-month installment plan. The only states with higher average rates were Utah, Nevada and Idaho.
Washington, D.C., and 16 states have already enacted caps on loan rates charged by payday lenders.
Meanwhile, if you want to borrow $500 from a payday lender in Texas, you need to be ready to pay back $1145.