Buy Now Pay Later
BNPL (Buy Now Pay Later), is a financing option being offered by more companies to increase sales. The practice partakes in an interest free payment plan where the customer pays in installment payments because they cannot currently afford the item they currently wish to purchase in full.
How it works
When purchasing at item the customer is contractually obligated to make installment payments on the item being purchased without interest. Plans can divided into equal parts in which the customer will pay until the item is completely payed off. Payment plan agreements can be quite flexible ranging to weekly, bi-weekly and even monthly depending on the agreement. Missing a payment can incur late fees (which do incur interest if your unable to pay it), account fund freezes, or in worst case scenarios be sent to a debt collector which can effect your credit score.
Why it is a problem
Much like credit cards this provides consumers a false mindset in where they start to spend more than they actually have. This is due to the first initial part of the payment being a fraction of the total cost. If the consumer is not keeping track of the payments due each month (since each item being purchased may have separate agreements for when you have to pay) can lead to a Pile On effect where the customer get billed a bunch of late fee's that they owe interest on because they were not able to pay the agreed upon amount. This can lead the consumer into financial ruin because they now owe the late fee (with interest if not payed immediately) plus the amount that was due that month.
Examples