A rising trend in the financial industry is the emergence of Buy Now, Pay Later (BNPL) platforms. These platforms enable customers, even those with poor or no credit to purchase goods and services on an installment basis. Financial planner Matthew Murawski of Goodstein Wealth Management, LLC has seen interest in these platforms rise and thinks it is time to start talking about what buy now, pay later means for individuals and the credit industry.
Buy now, pay later allows consumers to make purchases by breaking up payments over time and taking goods home with no money down. Platforms have existed in the U.S. for several years; however, the last two years have driven interest in this kind of credit alternative. Often with no credit check and zero-interest payments, it is becoming a very appealing option for many consumers. Enabling them access to goods and services that they otherwise would not be able to buy, these platforms are attracting a growing following in younger demographics like Generation X, Generation Z, Millennials, and older Americans who simply do not want to use credit or savings for purchases. Adobe Analysis reveals BNPL platforms grew 215% year-over-year in just the first few months of 2021.
Consumers first find a platform they want to use to make their purchase, Afterpay (recently purchased by Square), Affirm, Pay in 4 from PayPal, Quadpay, Uplift, Stripe, Per Pay, Klarna, to name a few. The amount that can be borrowed varies, it can start as low as $10, and go up to over $10,000 depending on the specific platform. These platforms offer payment plans anywhere from weekly to 3 to 36 months (and more in some cases), each has its own set of payment requirements, etc. Some charge interest, some do not, most will not run a hard credit check or ask for a credit score.
Murawski sees potential for both benefit and risk for consumers with BNPL setups. Benefits include the ability to turn browsers into buyers, giving consumers access to funds makes it easy to say yes. It also gives people who live on non-traditional income, those paid quarterly, influencers, creators, those in the digital economy, self-employed folks, etc., the ability to make purchases when they do not have cash on hand. From a consumer standpoint, buy now, pay later is a beneficial alternative to credit that can give them purchasing power. BNPL platforms are not legally considered credit; they do not fall under the same regulations, giving more flexibility than lines of credit.
BNPL comes with a risk as well and needs to eventually be paid back. While platforms do have limits, just like credit there is the possibility of taking out too many installment agreements, and not being able to make the payments when they are due. If not taken seriously, this could be a source of consumer debt and can add up quickly over time, especially if one is using multiple platforms. There can be a lot hidden in the fine print, high fees, penalties for delinquent payments, etc. It is best to make an educated decision if choosing to try out buy now, pay later.
Murawski is a financial planner at Goodstein Wealth Management and has been in the financial services industry for 9 years and is based in Encino California. He advises clients by providing individualized recommendations and strategies.
Please note the topics discussed here in no way constitute financial advice or buyer recommendation. This is simply a discussion of an emergent new platform for consumers.
Advisory services are offered by Goodstein Wealth Management, LLC a Registered Investment Advisor in the State of California.