HOUSTON - A survey leading into the holidays found a lot of people are comfortable going into debt to enjoy the experience. Now, with Christmas just days away, some consumers are finding new ways to borrow money.
The New York Times calls it "layaway" for the 21st century: A whole collection of 'but now, pay later' apps and services that are willing to pay for your purchases, and send you the bill.
Lupe Morris has embraced the idea. She says she was skeptical, when a shopkeeper recommended the service 'Afterpay' to buy an item that was outside her immediate budget. After some research showed it was more affordable than using a credit card, Morris gave it a try.
"You purchase what you want and they deduct the first payment right then, and there, out of your bank account," says Morris, "And then every two weeks, depending on how much you've purchased, they'll deduct a certain amount."
Afterpay is one of several such services that pop-up at checkout, often online, with a growing number of retailers. Like old-fashioned 'lay-away', the cost is spreadout over installments; but, here, buyers get the goods right away.
Houston economist Lance Roberts, of RIA Advisors, urges caution. "We tend to forget what caused the last crisis, so we say, 'well..why don't we do it again?'" says Roberts. He says the BNPL business model was born out of banking rule changes in the Obama administration, designed to encourage lending, and thinks there's danger for consumers that's certainly not part of the sales pitch.
While many of the services charge no interest, some climb to 30%. Aditionally, all of them have stiff financial penalties for any buyer who misses a payment, along with a notice that goes on their credit report. Roberts says, "The harm is not taking out the loan. The harm is over-leveraging yourself, putting yourself in a financial situation to where you, ultimately, default on your debt."
While shoppers like Lupe Morris take advantage of 'buy now, pay later' purchases, because they're cheaper than using a credit card, there could be a danger for consumers who could get in over their heead because of poor-spending habits. The trick is making the service work for you, and not the other way around.