What you need to know about Apple’s Buy Now, Pay Later | Smart Change: Personal Finances

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Jackie Veling

Earlier this week, at its Worldwide Developers Conference, Apple announced a new feature called Apple Pay Later – a “buy now, pay later” type of plan. The feature allows users to split Apple Pay purchases into equal installments at no cost.

Although there have been rumors of an explosive industry cooling off buy now, pay later, Apple’s entry into the market suggests that this type of short-term installment loan is here to stay. And with millions of people already using Apple Pay, more borrowers will have access to a buy now, pay later plan as the cost of goods rises and household budgets tighten.

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Buy now, pay later plans can be an affordable way to borrow money, but potential users should consider the risks associated with this type of debt.

How will Apple Pay Later work?

Apple Pay Later splits your total purchase into four equal installments paid off over six weeks, with no interest or fees, according to a press release from the company.

It’s similar to plans offered by other buy-it-now, pay-later providers like PayPal, Afterpay, and Klarna. The first payment is due at checkout and the remaining three payments are due every two weeks until the loan is paid in full.

For example, if your purchase is $100, you’ll pay $25 at checkout, and then you’ll have three remaining payments of $25, each due two weeks apart, for a total refund period of six weeks.

By eliminating interest and fees, Apple automatically stands out in the “buy now, pay later” space. Although few current providers charge interest on a four-payment plan, many charge late or missed payment fees.

To use Apple Pay Later, borrowers must first apply, which can be done when paying with Apple Pay or through the Wallet app. Apple did not mention the underwriting criteria in its press release. Yet most providers buy now, pay later do not require a minimum credit score, making them an option for applicants with bad or no credit. Once users are approved and accept the payment plan, they can view and manage upcoming payments in the Wallet app.

Payments must be linked to a debit card, which can be automatically charged. Apple will send reminders before an automatic payment is processed.

Apple Pay Later will be available wherever Apple Pay is accepted online or in the app, according to the press release. The feature will launch with iOS16, which will be released later this year.

What to know about using a buy now, pay later plan

Most financial experts urge caution when it comes to buy now, pay later. While it seems easy to spread out a purchase at no extra cost, going into debt is risky, especially for things you don’t need.

One of the biggest concerns with buy-it-now, pay-later plans is overspending. Charles Ho, a certified financial planner based in Folsom, Calif., says the instant gratification built into these plans can lead to splurges you’ll eventually regret.

“With cash, we’re much more careful about whether what we’re buying is worth what we’re paying for,” he says. “While if we don’t have that pain of paying immediately, our value radar is thrown off. We’re willing to pay more for something or even buy something we wouldn’t otherwise buy.”

It’s also easy to lose track of payments and fall behind, especially if you’re managing multiple buy now, pay later loans at once. While Apple doesn’t charge a fee for failed payments, your bank or credit union most likely will if you go over the debit card linked to your Apple Pay Later. Additionally, some buy now, pay later lenders may also report late payments to credit bureaus, which could hurt your credit score.

Finally, there is growing concern about the lack of regulation around buy-it-now, pay-later plans. In December 2021, the Consumer Financial Protection Bureau launched an investigation into some of the biggest providers, citing data collection, debt accumulation and consumer protection concerns. However, the bureau has yet to release its findings.

Ho says buy now, pay later isn’t always a bad option for those who want more payment flexibility and can afford installments. However, he recommends taking time before accepting the loan.

“If you want to take advantage of the zero interest and spread out the payments, I’d say sleep on the purchase overnight,” he says. “If tomorrow you still really want it and you can make the payments, then go for it.”

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