MEMPHIS, Tenn. — It’s not like paying with plastic, and it’s definitely not your grandmother’s layaway.
However, while shopping online during the holiday season, consumers may notice a new form of installment plans. These plans allow customers to get your merchandise immediately without paying the full price.
WREG took a closer look at the services, including three steps all consumers should take before signing up.
At Major Pieces Boutique and Beauty Bar on Mount Moriah in Southeast Memphis, the store is filled with the types of pieces typical for the season, in a year that’s been anything but.
Owner Tanika Bland showed us around the store, which was decorated in holiday decor, pointing out pieces like peplum jacket, a sequin romper and a red, velvet dress.
“I am so happy that we were able to open our doors back up again for our customers. And we’ve been able to offer them different options for our customers who prefer to shop online,” explained Bland. She said online sales increased during the pandemic, and she was pleased to offer options like curbside pickup.
Another popular option for customers shopping online at Major Pieces Boutique and Beauty Bar is installment based payments through an online, third-party called Afterpay.
Bland’s been offering the service for more than a year now.
“I call it the new age layaway. Basically, you don’t have to wait to get your items. You can take your items home with you now and you just split that payment up,” explained Bland.
Here’s how it works. Customers shop online at any number of retailers, but instead of paying with a credit or debit card at checkout, Bland explained, “You’ll have the option to check out via after pay then it’ll direct you to the Afterpay site.”
Afterpay splits the total into four equal installments, paid every two weeks.
According to its website, there’s no credit check, no interest and instant approval. Bland pulled up her online store, and showed us where a pair of pants that retail for $52.99, would be split into four payments of $13.25 through Afterpay.
She said, “So if this is $100, $25 today, $25 in two more weeks and so long until it’s paid off. It’s, it’s a great option.”
Options that are growing and fast.
Besides Afterpay, there’s Quadpay, Klarna, Affirm and even Paypal now offers what’s called “Pay in Four”.
Hundreds of retailers are available through the services ranging from Macy’s and Dillard’s to Dick’s Sporting Goods, Ulta Beauty, Sephora and Walmart. Also, Afterpay includes a section for small business and black owned businesses.
“The pandemic and the holiday season has kind of created the perfect scenario for a coming out party for these types of services,” said Matt Shulz, Chief Credit Analyst with LendingTree.
In addition to shopping online through retailers, then checking via a buy now, pay later platform, each of the companies have apps. And at some stores, customers can then use the app for mobile check out.
So the services that are contact free, convenient and Shulz says they offer an alternative to traditional credit.
“Maybe the thing that people like the most about these services is that they tend to be pretty transparent and pretty clear, and that’s something that nobody ever says about credit cards,” explained Shulz.
Do Your Homework First
With that said, Schulz says it’s critical shoppers do their homework, because not all of the services are the same.
“These services really come in all flavors and shapes and sizes. And it’s really important for people to understand that just because they understand how one of them works, they may not have any idea how the next one does,” explained Shulz.
For example, Klarna in addition to the four interest-free payments, Klarna also offers a 30-day option along with longer term financing which does include interest.
Affirm’s platform is strictly financing. According to its website, loans range from 0% to 30% APR, depending on a credit check. Also, a down payment could be required.
Most of the “pay in four” style options don’t include a credit check, or the companies conduct what’s considered a “soft inquiry” which doesn’t affect a person’s credit score.
All of the platforms that provide the option of four interest-free payments, require customers to link a form of payment.
Be cautious when handing over banking information
Lakesha Williams is a wealth advisor with SunTrust now Truist.
“Anytime someone asks for your bank account information, just be very cautious and mindful,” said Williams.
Credit is an option in some cases for people who don’t want to link to their bank account.
However, Shulz said, “Most of these services that I saw allow you to pay for these services with a credit card, which I thought was kind of interesting and almost seems to defeat the purpose a little bit to a degree.”
Plus, some major credit card companies have come out and said they will not offer the same protections if there are problems with purchases via buy now, pay later sites.
Avoid Missed Payments
Williams also said while the interest free, planned auto-drafts seem predictable, life isn’t. Therefore, a missed payment could be costly from the third party and the bank if the money’s not in the account.
“Sometimes you forget we’re human and boom, you’re hit with a $35 dollar overdraft fee. So you were charged a $35 fee for a $25 item,” explained Williams.
Don’t Be Tempted to Overspend
Williams also says even with installment plans, it’s important to stick to a budget.
“Like Santa make your list and check it twice … Don’t go and overspend because you have to only pay a fourth, then you go by four times the amount,” Williams said.
Along those lines, Bland said, “It’s kind of a way that they can budget their money and still get what they want.”
For small business owners like Bland, online shopping helped keep her boutique open when the doors were closed, and she says services like Afterpay, provided an extra boost.
“I love it, just not to spend the money just right away, you know, spend $50 today for an item that’s $200. You get the item shipped out to you immediately. You can’t beat it,” she said.
As far as how the companies make their money, they charge the retailers a fee for offering the services. There’s also the interest included on those longer term purchases. Defaulting on payments entirely can result in additional fees and the companies can even take legal action against customers who fail to pay based on the arrangement.
