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Is Holiday Shopping With Buy Now, Pay Later Worth the Risk?

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Buy now, pay later (BNPL) financing is booming, but new research questions whether or not it’s worth the risk.

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BNPL is short-term financing that allows consumers to make a purchase and pay interest-fee at a later date. This payment method is especially popular with Gen Z shoppers, but those who use BNPL typically spend more than they would with a credit card, according to new research by Harvard Business School professors Marco Di Maggio and Emily Williams, and HBS doctoral student Justin Katz.

During the holiday season, BNPL may seem like a good way to be able to afford gifts, but Di Maggio and Williams say that it can lead to overdraft and insufficient funds fees, particularly for lower-income shoppers.

“Put yourself in the shoes of the consumer,” says Di Maggio, the Ogunlesi Family Associate Professor of Business Administration. “You see something you like, you put it in the shopping cart, and you start to checkout. Before, you were looking at $100 for the item, plus shipping, plus taxes. Now, the bill [for the first installment] says $25. You say, ‘OK, now I’m going to buy it for sure.'”

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According to a survey from Oxygen, an online-only bank, more than half of shoppers made a purchase with buy now, pay later last year that they couldn’t pay off, CNBC reported. On Black Friday through Cyber Monday, recent research from Adobe shows that BNPL payments were up 85% compared with the week before and BNPL revenue rose 88% during the same period.

CNBC reported that going into November 60% of Americans said they were living paycheck to paycheck. Marshall Lux, a fellow at the Harvard Kennedy School, says that this increase in installment buying shows just how stressed the economy is right now, and BNPL offers a temporary “lifeline” for many shoppers who cannot afford things.

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A missed payment means late fees, deferred interest or other penalties, says CNBC. If the provider reports this to the major credit bureaus, a late payment could cause your credit score to take a hit.

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