The digital-payments platform Square Inc. recently said it agreed to acquire Afterpay, one of the main players in the burgeoning industry that lets online shoppers buy things immediately and pay for them later. If the deal goes through, buying clothing, jewelry, home goods and, yes, exercise bikes with installment payments is likely to become more widespread.

That’s not necessarily a good thing for consumers.

The way many of these programs work sounds simple enough: Instead of having to pay the entire cost upfront at checkout with a credit or debit card, customers generally make a small initial payment and then owe a portion of the remaining balance at regular intervals over the course of a designated period until it’s paid off. If they make their payments on time, they typically don’t owe interest.

One of the main problems, though, is that there are about two dozen buy-now, pay-later apps, all with different rules, payment schedules and penalties. For example, Afterpay caps late fees at 25% of the purchase price and provides reminders before payments are due, while others aren’t quite so consumer friendly.

Some payment apps are geared more toward big-ticket items and offer what’s called point-of-sale financing at different interest rates over a longer period of time. Others stick with four interest-free installment payments over six weeks or so.

In addition, some may report delinquent payments to credit bureaus or, ultimately, debt collectors, while others don’t. They also have varying degrees of assessing borrowers’ ability to repay — if they even go so far as to do that.

It’s hard to keep tabs on it all, especially because of the way the apps are set up. Consumers typically don’t go to the app first and then make a purchase; most go to the retailer’s website and then are given the option to pay via installment through whichever payment app the merchant has partnered with. Losing track of payments can be especially dangerous if they’re linked to a debit card since overdraft fees can be triggered if money isn’t transferred over in time.


Beyond navigating the nuances of each payment app, there’s a bigger issue. Studies show buy-now, pay-later often induces people to spend more. Two-thirds of shoppers said they bought more thanks to buy-now, pay-later, and almost half said they wouldn’t have made the purchase if that hadn’t been an option, according to a recent survey by LendingTree. In addition, consumers don’t seem to be using an app once just to buy an essential home item they couldn’t afford otherwise, like a refrigerator.

Among those who use have used a buy-now, pay-later app, 62% have done it five times or more, according to LendingTree. And one of the most popular purchases is a designer dud or accessory.

It’s no surprise that another major buy-now, pay-later app, Affirm, said it has a very strong retention rate among its merchants. And those merchants may not feel as if they have to offer sales or discounts since customers are willing to pay more if they’re able to delay payments, according to Chuck Bell, programs director of advocacy at Consumer Reports.

Those who are unhappy with their purchases may run into problems down the road, too. Complaints to the Better Business Bureau and the Consumer Financial Protection Bureau show there are disgruntled customers who tried to make a return and had difficulties getting full refunds, especially if the store issued a credit.

Another common complaint is not getting reimbursed for canceled travel plans that were paid via buy now, pay later. And some fintech companies haven’t built out their customer service units, which can prove to be especially frustrating for consumers.

Finally, the argument for offering buy now, pay later is that younger consumers are wary of credit cards and racking up debt, and don’t want to worry about calculating interest or late fees.

But for all their shortcomings, credit cards have some actual benefits. First, they’re more regulated than payment apps. They also offer more protection if there’s a dispute with a merchant. And they reward spenders with cash back or other perks. Plus, they’ll help younger consumers build a credit profile, which is important if they ever want to buy a house.

Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she oversaw tax coverage for Bloomberg News.