What happens if we agree to buy now, but can’t follow through and pay later?

Buy now, pay later loans have surged in popularity in recent years. Services such as Affirm, Afterpay, Klarna and PayPal Credit allow consumers to make interest-free installment payments on a purchase over the course of several weeks.

According to a recent survey on Buy Now, Pay Later user habits, 60% of respondents say they have used a Buy Now, Pay Later service. Of those, nearly half (46%) are currently making a payment or payments through one of those services. Clothing and electronics lead the way as the most common types of purchases at over 40% each, followed by furniture (32%), appliances (29%), housewares (23%), and cosmetics (22%). Although these type loans are often offered without an interest or additional charge, a failure to pay or choosing to pay with a high interest credit card can lead to big financial problems in the future.

How are these arrangements different from credit cards?

Buy now, pay later (BNPL) services do not check credit, making access much easier compared to the process required to get a credit card. BNPL services also offer more flexible repayment options; instead of the need to pay off at least the minimum every month, a BNPL arrangement can have set payments for various options set by the consumer. Common options include a three-, five- or twelve-month repayment plan. Shorter repayment plans are often interest-free, while longer options, generally 48 months or more, may apply an interest rate.

Credit cards are oftentimes more widely accepted and offer benefit programs not yet available through BNPL services.

It is also important to note that these services often still apply a late fee if the borrower misses a payment. Although one of the benefits is the freedom from interest rates and fees, some BNPL services do not have these perks. There can be fees and interest rates, so it is important to carefully review the language of the plan before choosing a BNPL service. The arrangement also tends to encourage overspending.

Do these types of loans make financial sense?

In some cases, they work well. The ability to put off full payment a couple of months can work for occasional purposes. But problems arise when people regularly rely on this form of payment. Unfortunately, this is a growing problem.

Those who used these buy now, pay later arrangements may find themselves financially strapped when the payment is due. This can make repayment very difficult. This is not uncommon. Recent releases from two different agencies found that reports of delinquencies, or the inability to repay these loans, are climbing. The first was released by Fitch Ratings, a credit rating provider, found delinquencies on buy now, pay later loans rose from March 31 of 2021 through March 31 of 2022. The second came from a government agency when a representative of the Consumer Financial Protection Bureau also noted that delinquencies for these types of financial services are climbing.

What happens if I cannot repay my BNPL balance?

A debt with a BNPL service is similar to any other debt. You can start to feel overwhelmed and may wonder how to pay off the bill. If enough time passes, the BNPL service could use a debt collection service and the debt could negatively impact your credit score.

In bankruptcy, BNPL loans are considered general unsecured debts just like credit cards. This means that they do not receive priority treatment and can easily be discharged in bankruptcy. Bankruptcy laws were created to help people resolve overwhelming debt and gain a fresh financial start. It is important to consider all options before moving forward with bankruptcy. If bankruptcy is the right choice, it could lead to the forgiveness of this debt and help set you up for a more stable financial future. An attorney experienced in this area of law can review your situation and discuss your options. We have seen year after year, client after client, how a well-crafted bankruptcy can dramatically improve people’s lives. It costs you nothing to take action and schedule a free consultation with one of our experienced Miami bankruptcy lawyers to discuss how Florida bankruptcy laws can help you.