Buy Now Pay Later Apps: That Old Predatory Lending by a Crappy New Name

Years ago Kitty and I did an interview with Glen James from My Millennial Money, a podcast out of Australia that answers the question “Will I ever get tired of listening to men with Australian accents talk about everything from true crime to investing?” (And that answer, to be clear, is a resounding haaayl nah.) You should listen to it! It’s great!

At the end of our conversation, Glen hit us with a curveball. “What do you think of Afterpay?”

“I don’t know her,” said we. And Glen, who is clearly gifted with The Sight, answered cryptically, “Ah. So it hasn’t made it to the States yet. Good luck, mates.” And then we asked him to say “1999” and giggled incessantly.

Flash forward to the present. Not only have we now heard of buy now pay later apps like Afterpay… we fucking hate them. Which means it’s time for another installment of Piggy Rails Against a Financial Outrage for 2,000 Words Or So.

Dafuq is buy now pay later?

Buy now pay later (BNPL) apps are a lending practice that lets you buy something right now and pay for it later. Usually they break the cost up into four smaller payments (why four? We’ll get to that). Sometimes you’re not required to pay anything up front, sometimes you are, depending on the app.

Here’s how you use buy now pay later:

1. Download a BNPL app. Some retailers work with some BNPL apps and not others, so you might actually need to download multiple apps.
2. Link the app to your bank account or even credit card (I cannot make this shit up) for automated installment payments.
3. Shop at an online store, adding stuff to your cart as you normally would.
4. When it comes time to check out, select the BNPL payment option.
5. Make installment payments—or automate those payments—through the BNPL app.

Example time! You buy a jacket online for $100 using a buy now pay later app. You pay nothing at checkout, get that sweet jacket delivered, and then you pay $25 a month through the app for the next four months for the privilege of using BNPL. No interest! No extra fees! …as long as you make your payments on time and in full, that is.

The buy now pay later rogues’ gallery

The most popular buy now pay later apps are:

• Affirm
• Afterpay
• Klarna
• PayPal’s Pay in 4
• Perpay
• Sezzle
• Splitit

I will not be linking to any of them because I don’t want to send them business. I’m petty like that.

Also, I won’t really bother differentiating between them. Much like multilevel marketing, it’s the business model that’s the problem, not any single buy now pay later app. If you care about their differences and want a favorable comparison, peep Investopedia.

Now that they’ve been named and shamed, you can more easily avoid them.

The rise of buy now pay later

Whether or not you’ve heard of BNPL, you’re probably wondering where I’m going with this. Why the vitriol? The utter contempt?

I listened to a lot of interviews with buy now pay later customers in my research for this article. And when asked how their personal problems with BNPL started, these customers all said the same thing: “It all started with the pandemic.” And those personal problems ranged from debt spiraling out of control, to plummeting credit scores, to unexpected overdraft fees, to not even wanting what they’d paid for after their final payment.

There we all were, stuck alone in our homes, unable to shop or go out to events or restaurants. We were bored! Lonely! Fucking stressed out and afraid! A lot of us were tightening the budgetary belt because—and I am living proof—job security got a whole lot less secure.

Enter retail therapy with a fun new twist. Suddenly, us lonely, locked-down, stressed-out motherfuckers looking for a cheap pick-me-up were seeing ads for awesome new stuff on an interest-free payment plan. That sounds downright affordable!

And who cares if no one will see me in these shmancy new boots any time soon? I will wear them for me, and I will clomp around in my fourth-floor walkup so my downstairs neighbors know I can afford nice things! They say “QUIET DOWN UP THERE,” but they mean “We are consumed with jealousy at your good fortune!”

Of course, the thing about deals that look too good to be true is they probably absolutely are, 100% of the time.

More like buy now pain later, amirite?

By now my distaste is clear. So let’s show the receipts! Here are some of the ways BNPL isn’t just kinda shifty and gross, but verifiably predatory, empirically evil, and absolutely nothing new. (Coincidentally, Verifiably Predatory, Empirically Evil, and Absolutely Nothing New was the alternate title for our podcast.)

BNPL sneaks around regulatory agencies

Most forms of consumer lending in the United States are regulated by state and federal laws of one form or another. But the extent to which BNPL is regulated is kind of up in the air.

For example, the Truth In Lending Act (TILA) handles almost all traditional loans. Its purpose is to protect you against “inaccurate and unfair credit billing and credit card practices.”

Yet TILA only kicks in for loans of five installments or more. Remember how I said almost all buy now pay later loans are broken into four installments? Yeah. That’s intentional.

BNPL mostly operates just below the threshold of regulatory scrutiny. That way BNPL customers are left with little legal recourse to fight back against their shittier business practices. Which brings me to…

BNPL comes with exorbitant fees

On its surface, buy now pay later looks like a generous interest-free loan. But make one misstep and they’ll slap you with ALL THE FEES.

Late fees! Return payment fees! Missed payment fees! Account reactivation fees! Rescheduling fees! Prepayment penalty fees—is there no justice?!?! Some late fees are at least $20, and others charge an interest rate of 30% on late payments. Others offer long-term payment plans at 25% APR! Which really kind of negates the frugal benefits of buying now and paying later.

And lest you think it’ll be easy to avoid fees, Lending Tree found that 42% of all BNPL customers make at least one late payment… and are penalized accordingly.

But that’s not even where most of the buy now pay later apps get their profits.

BNPL is better for merchants than consumers

Buy now pay later apps make most of their money from charging merchants to include them on their checkout pages—a cost of 2-8% of customers’ purchases (for context, credit card companies charge a merchant fee of 1.3-3.5%). And retailers are happy to share a cut with BNPL apps! Because customers buy more when they use BNPL.

In addition, the retailer’s problem of “cart abandonment” (when you fill an online shopping cart then get spooked by the total price and just decide to buy nothing instead) is reduced with BNPL. It’s a devil’s bargain between vendors and BNPL apps to get people to buy more, spend more, and stop abandoning carts. Which leads me to…

BNPL makes you more likely to overspend and overdraft

Studies show people are easily seduced by smaller dollar amounts. Four payments of $25 each just looks cheaper than $100, y’know?

When you make multiple purchases with BNPL, it can be hard to keep all those payments straight. That’s why BNPL users are more likely to overspend, paying money they don’t have in their bank accounts, which leads to expensive bank overdraft fees. In fact, 70% of BNPL customers admitted they have spent more than they otherwise would if they paid for everything upfront.

Which sucks, but at least all these lil’ BNPL loans are helping to bulk up your credit score, right? … right?

BNPL is more likely to hurt your credit than help it

Far from helping you build credit, buy now pay later is actually more likely to hurt your credit score.

Recall our lesson on the recipe for a good credit score. Three of the ingredients are 1) a low utilization rate (don’t max out your credit card limit), 2) credit accounts that have aged like a fine wine (the older the better), and 3) not opening too many accounts too quickly.

Let’s say you make a $100 purchase with BNPL and pay it off over four months. To the credit reporting bureaus, that’s basically the equivalent of opening a credit card with a $100 limit, maxing it out immediately, and then canceling it four months later. And if you frequently use BNPL, the bean counters behind your credit score interpret that as you doing this credit-risky thing over and over again!

And you best believe the credit reporting bureaus know the instant you miss a payment.

BNPL makes returns a nightmare

Because BNPL is so new, the science of credit reporting is clearly still catching up. So is the science of easy returns.

Because you make BNPL purchases through a third-party app, in multiple installments, getting a refund from the retailer for a return can be a pain in the ass. For example, Affirm makes you request a refund from the vendor and continue making payments until they approve the return. Only then will they reimburse the purchase price… within 10 business days.

BNPL is very susceptible to scammers

Hackers! Fraudsters! *~*cYbErCrImInAls*~* The internet’s full of ’em.

BNPL apps are particularly susceptible to the criminal underbelly of the internet. This is partly because a) by virtue of being a new technology, it still has kinks to work out, b) the payment structure gives fraudsters more chances for infiltration, and c) the lack of government regulations and monitoring means assholes can sometimes get away with shit while the hall monitor’s not looking. Here are the two most common scams:

1. Synthetic identity fraud: The hacker stitches together different bits of stolen info from multiple real people to create a fake person. They then use their fake person to buy goods and services through a BNPL app (remember: they don’t check credit), with no intention of making their payments and no way for the app to track them down. It’s the three-kids-in-a-trenchcoat-buying-booze scam for the internet era.
2. Account takeover fraud: Just like someone stealing your credit card, this happens when a thief gets ahold of your BNPL account and uses it to buy stuff. Except you won’t even know you’ve been hacked until weeks or months later when the first payments come due. That gives the evil fucks much more time to run up a tab at your expense.

BNPL is under federal investigation

The federal Consumer Financial Protection Bureau (CFPB) opened an investigation into the BNPL industry last year. And they tend not to investigate something unless it smells fishy.

Individual BNPL apps have also been sued in various states, including Klarna in California. Until some kind of regulatory crackdown takes place, we’ll probably see more of these kinds of investigations and lawsuits.

The long, sordid history of predatory lending practices

If you’re thinking “How is that different from buying on layaway?” then congrats! You are me circa the day I started this research.

BNPL is a lot like buying on layaway. The difference is that when buying on layaway, you usually only get your purchase after you’ve made all your installment payments. Which makes buy now pay later all the more tempting. You get that instant gratification, baybeeeeee!

Buy now pay later comes straight out of the grand tradition of predatory lending practices, of which payday loans are a great example. Poor folks will always be in need of fast cash without a cosigner or a credit check. And predatory lenders are there to swoop in with the money, no questions asked… and barf-inducingly high interest rates and fees.

BNPL is just that old predatory lending by a crappy new name. It’s gotten a new coat of paint and a rebrand, but let’s call this thing what it is: BNPL is an efficient and nicely marketed way of tempting low-income people into parting with their money.

Are buy now pay later apps ever a good idea?

Now’s the part where I get off my sanctimonious high horse and grudgingly admit that BNPL has its uses. Just like payday loans and buying on layaway. These lending practices persist because there’s a market for them.

Even when people know exactly what they’re getting into with a buy now pay later app or unfavorable loan… they still use it. Often because they’ve exhausted all other options. When your choices are going into debt or starving, it’s really no choice at all.

None of this tirade against BNPL is meant to shame users of the apps. If you’ve been tempted by BNPL to get things that will improve your life (or at least make it fucking bearable for a little while), you’ll get no judgment from me. Do what you need to do to survive.

But I hope my spluttering rage over BNPL’s shitty business practices gave you pause. Be careful out there, babies!

ANNOUNCING THE BITCHES GET RICHES BUY NOW PAY LATER APP!!!!!!!!!

If you’re still tempted by BNPL… boy, do I have a Patreon subscription to sell you!

For just 12 monthly installments of $10, you can support the Bitches for a whole goddamn year by joining our Patreon! That’s right! For just $10 a month, you can help us produce Bitchy content like this and get access to Patreon exclusives like monthly polls, private messages, secret videos, and the smugness of knowing you’re funding our fight against patriarchal capitalist hegemony. That’s like… $2.30 per article for a whole year! WHAT A FUCKIN’ STEAL!

By no means should you whip out a calculator and do the math on the Bitches Get Riches exclusive BNPL offer. Just click the shiny Patreon button above and give us your menny. We promise to put it to good use without destroying your credit score.