TULSA, Okla. — As holiday shopping ramps up, more consumers are turning to "buy now, pay later" offers to stretch their holiday dollars.
Financial experts say shoppers should understand both the benefits and potential pitfalls before signing up for these increasingly popular payment plans.
Buy now, pay later plans have become a mainstream financing option, with more people now preferring them over store credit cards for holiday shopping — a significant shift from just a year ago, according to recent research.
"Buy now, pay later has gone from this kind of new mysterious thing to a full-blown phenomenon and just part of mainstream personal finance now," said Matt Schulz with LendingTree.
When budgets are tight, these plans can be appealing for stretching out payments. What many consumers don't realize is that buy now, pay later is actually a loan where you make several payments over a short period. If you pay on time and in full, you don't pay interest.
However, the biggest mistake people make is paying late, which triggers costly late fees that can quickly change the financial equation.
"We've seen that a really large number of people pay late on a buy now, pay later loan," Schulz said. "Part of the beauty of buy now, pay later in theory is that it's interest-free and a relatively cheap alternative, but once you factor in late fees, it really changes the calculus on a lot of stuff."
The late fee structure often comes as an unpleasant surprise because this information is typically buried in fine print when consumers sign up.
If there's any possibility you can't pay in full and on time with no missed payments, buy now, pay later isn't your best financing options despite its growing popularity.
For consumers who can't cover payments immediately, credit cards with zero percent interest periods may be a better option.
"Many stores this time of year and throughout the year also offer special financing where you can pay 0% interest for 6, 12 months," Schulz said.
He adds, there's often a catch with these promotional offers.
"It's really, really important to understand when you're going into that sort of deal that if you do not pay that full balance off during that 0% period, you will often get hit with a retroactive bill for all the interest that you would have accrued going back to the purchase date," Schulz said.
Schulz emphasizes that like most financial tools, buy now, pay later can be beneficial if used wisely. The same goes for 0% financing offers.
"You just have to make sure you understand what you're getting into and that you use it wisely," Schulz said.
"This story was reported on-air by a journalist and has been converted to this platform with the assistance of AI. Our editorial team verifies all reporting on all platforms for fairness and accuracy."
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