Yes, you can buy now and pay later, but should you?

• From Erin Lowry / Bloomberg opinion

Lie down. Credit cards. Installment Loans. We have been “buy now, pay later” practices for decades. The latest model actually bears the title. Startups like Affirm Holdings Inc, Klarna, Afterpay Ltd, and even popular names like PayPal Holdings Inc, dubbed the fintech hottest thing, offer their customers the ability to spread the cost of a purchase across smaller, affordable monthly payments.

Millennials and young Gen X shoppers are flocking to buy apps now and pay later, with Gen Z not far behind. Are these just the next innovations in consumer culture? Or should we worry?

My knee-jerk reaction to slick offers of “interest-free” and “fee-free” funding is skepticism. There is certainly a catch.

In general, with free services, you are the product – regardless of whether your data is used or you are forwarded to another company. Many buy now, pay later, or BNPL services have secured partnerships and integrations with well-known retailers such as Amazon.com Inc, Walmart Inc, Macy’s Inc, and Bed, Bath & Beyond Inc. Why? Because buy now, pay later Tools encourage people to spend money.

It’s the same behavioral statement that we see with credit cards: you have the option to make the purchase now, even if you can’t afford it. Studies over the decades have shown that those who use credit cards are more likely to over-spend compared to their cash counterparts. Granted, the relationship between overspending and intangible currency could change as money becomes more digital.

In addition to partnerships and integrations, BNPL Services may also receive a commission from partner distributors for every sale. Some BNPL models have loan offers that charge interest, so it is important for consumers to understand when interest and fees will apply.

The BNPL model certainly also has positive aspects. If you want to make a large purchase without tying up too much cash flow, you can benefit from the option of paying in installments. A friend of mine mentioned that he has to buy now and pay later to buy a crib. Could it have prepaid? Yes sir. Was she going to spend $ 1,200 at a time when she had many other expenses? Nope.

It is worrying, however, that these services are often not used for high-priced items. Electronics and clothing / fashion are the most common purchases made through a BNPL service, according to a survey by Ascent. For example, on Affirm’s website you will be asked whether you are “looking for an outfit that inspires”. Afterpay’s, the fast fashion companies Shein, Old Navy and Crocs are currently among the most popular categories.

It is not necessarily wrong to split the occasional purchase in several installments or to defer payment until later.

However, it is worth questioning the message and integrations targeting younger generations to buy more of what they may not be able to afford.

If these services persist, which is likely, it is wise to consider the most responsible ways of using them.

For those looking to avail of a BNPL loan, the behavior should be similar to that of using a credit card properly. Pay this bill on time and in full every month. Don’t buy anything you can’t afford when the bill is due. Just because you have access doesn’t mean you can actually afford the item.

Even if a BNPL company says they will send SMS and email reminders when an invoice is due, consider setting up your own to make sure there is enough money in your monthly budget to keep your payments under control to keep.

It probably makes the most sense to use a BNPL service for the occasional high volume item, rather than funding impulse purchases or cheaper purchases.

If you plan to use BNPL to make multiple purchases in a short period of time, make sure you keep track of how much of your monthly budget you have already set aside for these installment loans to avoid over-spending.

Even if the service says “no charge” in large letters, be sure to read the fine print and understand what happens if you miss a payment and what interest will be charged on your purchase.

One of the biggest warnings, remember what is funding your BNPL purchase. If you choose to pay by credit card, you can create yourself high-interest credit card debt if you fail to make payments on time. You wouldn’t be better off than if you had written everything on the card from the start.

Basically, just because you can buy now, pay later – should you? You can only answer that for yourself, but if you have obsessively overpayed or misused credit cards in the past, be careful with the advent of these services.

Erin Lowry is the author of Broke Millennial, Broke Millennial does the investing and Broke Millennial Talks Money: Stories, Scripts, and Advice to Use on Uncomfortable Financial Conversations.

This column does not necessarily represent the views of the editors or Bloomberg LP or their owners.