Want that new pair of sneakers you saw on a recent Instagram ad, but is your pesky lack of funds getting in the way of clicking "buy"? "Buy now, pay later" (BNPL) services might be your answer to sporting your new kicks without having to take out a personal loan for debt consolidation. BNPL valuations are raising serious eyebrows in the fintech world—Square recently agreed to buy Afterpay in a $29 billion all-stock transaction. But why are these apps so popular with younger buyers? And what do you need to know before you use one?
What are buy now, pay later services?
Buy now, pay later services allow consumers to buy products over time. Instead of paying the full cost of an item at the time of purchase, customers can make a smaller initial payment and then pay off the rest of the balance at fixed intervals over a designated pay period.
Why Gen Zers and millennials are using them
Gen Zers and millennials are looking for flexible ways to purchase items online without sinking into credit card debt. This is especially true with the pandemic increasing online shopping. BNPL options can give users the ability to buy items they may otherwise not have access to with a defined repayment schedule.
Benefits of buy now, pay later services
BNPL allows consumers to purchase products that they might otherwise not be able to afford outright. They offer some protections for merchant disputes, can reward users with perks, and can even help younger users begin building credit profiles.
Dangers of buy now, pay later services
BNPL options also carry their fair share of risks. For one, there are at least two dozen BNPL apps that all have different rules and penalties. Some send payment reminders, others don't. Some have a late fee cap, others don't. Some report missed or late payments to the three major credit bureaus (Experian, Equifax, and TransUnion), others … yeah, you get it. It can be challenging to keep track of all the different rules.
Another big issue is how these apps can promote individuals to spend more than they normally would. After all, four payments of $50 sounds a lot more reasonable than blowing $200 at once. But it's worth noting that users aren't just using these apps to buy essential items. They're financing clothes, jewelry, and other discretionary purchases. Lastly, the customer service departments of some apps aren't very robust. Meaning unsatisfied customers may have issues receiving refunds for purchases they aren't happy with.
Bottom line: Gen Z + millennials + BNPL = match made in heaven or financial ruin?
Gen Zers and millennials may love BNPL, but are they smart shopping tools? While they can offer some buyers access to items they otherwise wouldn't be able to afford, they also can cause some consumers to go into debt. If you're not able to pay for an item outright and it isn't a necessity, it's probably best to just say no. So, if you can't buy that eyeshadow palette today, and you don't need it to survive, you're better off saving up your cash until you can click "purchase" and buy it in one fell swoop.
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Original Source: Why Gen Z, Millennials Are Using Buy Now, Pay Later Services