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Financing Everyday Purchases: Here's how 'buy now, pay later' services work

"Buy now, pay later" services are microloans that offer people a way to stretch out purchases.

INDIANAPOLIS — While shopping online, you might have noticed an extra payment option at checkout.

It's a "buy now, pay later" service, offering to split up your payments instead of paying for it all at once.

How the services work

Buy now, pay later services are microloans that offer people a way to stretch out purchases.

Companies who offer this type of financing include Klarna, AfterPay, Affirm and Uplift.

However, each service works a little differently.

Some buy you more time to pay for something, while others offer low to no-interest financing.

As for penalties, Ted Rossman with CreditCards.com said some companies charge late fees, while others do not. Because each service is unique, it's important to understand the consequences of late payments.

"I would say it could work for you, but you've got to be careful," Rossman said.

Pros and Cons

Rossman said Peloton's agreement with Affirm is an example of when this service could benefit someone.

"You can pay no interest for 39 months, and that can mean that a $2,000 exercise bike only costs $50 a month. That can actually work for you if you're disciplined about it," Rossman said.

Let a purchase that size sit on a credit card for 39 months, and you are pedaling away money on interest.

But you've got to be careful not to overspend.

"Sometimes, this stuff sounds so easy. And it's like oh, you know, I wasn't gonna buy that item. But if you're telling me it's only 50 bucks a month, I guess that's not that bad," Rossman said.

The point being, don't ever extend yourself just because it sounds affordable.

Financing Travel

In the past, these services were used for items like designer bags or furniture.

Now, travel is throwing its hat in the ring, with airlines and cruise companies accepting Uplift.

Uplift offers payment plans with interest rates ranging from 0% up to 36%, depending on factors including credit.

"On the application side, they're not usually as strict about checking your credit. These are usually only soft inquiries," Rossman said.

Soft inquiries do not ding your score.

But miss payments down the road, and the company may report you to the credit bureaus.

Returns

Keep in mind: If you buy something and try to return it, it might take longer to process than a credit card because there is an extra party involved.

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