As back-to-school shopping starts to ramp up, many online shops are offering pay-in-installment services that target both high school and college-age buyers. Services include a new method of payment such as buy-now-pay-later services.
These new payment methods allow shoppers to purchase just about anything – from electronics to a pair of shoes – by agreeing to pay a series of smaller installments. As with any financing option, consumers should understand what they are getting into by first doing some research to make informed purchasing decisions and avoid getting in over their heads.
How paying in installments works
As you start the checkout process with an online store, you notice the option to pay with a debit or credit card and the option to pay for your purchase in a specified number of installments.
The opportunity to split up payments is appealing to many shoppers, but especially younger shoppers who don’t tend to have and use traditional credit cards.
Most of the time, this option comes from a third-party financing company that makes money by charging retailers a small percentage of each sale made through their financing options and by collecting late fees and interest from consumers. Interest rates on pay-in-installment purchases can range from 0% to 30% depending on your credit history and the retailer. Installments can last for as little as a few weeks or as long as 39 months. You’ll likely need to be approved by the financing company before you can take advantage of an installment payment plan.
Smart shopping tips
• Don’t forget you are borrowing money. Even though many installment payment services come with only a few small payments and 0% interest, it’s critical you keep in mind that you are still borrowing money to enjoy a product before you’ve paid for it in full. Ask yourself if paying the total price means spending more than you can actually afford and make your decision accordingly.
• Stick to your budget. Think about how biweekly or monthly payments could affect your budget – even if the payments seem small. Will they cut into the money you’ve set aside for necessary expenses, such as your rent or groceries?
• Read the fine print. Before you sign up to pay in installments, be sure you understand exactly how the service works. Find out what company is financing your purchase, how long you have to pay off the purchase and in how many installments, how it handles late payments, and how much interest you’ll be charged, if any.
• Get to know the financing company. If you do decide to take advantage of an installment payment plan, look up the financing company on BBB.org to make sure it is a reputable company with honest business practices.
• Know how your credit could be affected. Keep in mind that unpaid debts can be sent to collections agencies and after a delinquent period of 90 days can be reported to credit bureaus. This could have a negative impact on your credit score.
More information on how you can safely buy and sell items online is available at trust-bbb.org. Find information on businesses you can trust by going to bbb.org, which includes business profiles and reviews.
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