Buy now pay later

Published in El Pais, 24 November 2020.

With this pandemic many people are facing an uncertain financial future, people once thought they had a secure job only to find themselves working reduced hours or out of a job entirely. Those who have kept their hours are still worried about impending layoffs and financial investments have forced many to go through an emotional rollercoaster. This financial uncertainty into the holidays has many thinking about toning down the festivities in order to reduce spending (of course they should be toned down to stop the spread of the virus anyway but that is not what we will be focusing on here). To combat the drop in holiday shopping, major brands are looking to offer installment payments, essentially you can buy anything you want now and worry about the bill later, often interest free (assuming you pay on time).

This of course is nothing new. Unless you fall upon a large inheritance or win the lottery you are more likely going to have to buy your house with a mortgage, few are able to pony up $20,000 for a car upfront and also rely on payments, however, this is the first time such a method is being tried on small ticket items. Want a new Xbox? Fortunately, Microsoft has set it up so that you can buy the new console in monthly installments.  Even small businesses are getting in on it as they partner with up and coming microfinance companies in order to offer this service.

The appeal for stores is that for a percentage of the sales they can still offer consumers short on cash a product and for customers they can still buy those Christmas gifts without getting into credit card debt.

It is not all good though as the consequences of missing a payment can result in high interest charges, deactivation of account, and if the debt is high enough, your case would be referred to a collection agency ruining your credit. What is even more unfortunate is that if your one of the good ones who pays your bills on time, many do not report payments to credit bureaus and thus your payments do not build up credit like a traditional credit card would.

Since this is in its early stages it is too early to tell if this is a saviour for both businesses and consumers, or just another avenue for people to get into serious debt. It will be interesting to see how this plays out.