BBB: Why you should think twice about using installment plans during online shopping

BBB: Why you should think twice about using installment plans during online shopping
Paying for that new purchase using an installment plan? Be careful. (Source: CNN)

CINCINNATI (FOX19) - The Better Business Bureau is warning consumers to be careful about paying for large online purchases using installment plans.

Often these plans target high-school and college-aged buyers stocking up on back-to-school supplies, BBB says.

The buy-now/pay-later services are popular because they allow shoppers to purchase shiny new products — from fresh Jordans to new AirPods — by agreeing to a series of small payments.

“The opportunity to split up payments is appealing to many shoppers,” BBB says, “but especially younger shoppers who don’t tend to have and use traditional credit cards.”

According to BBB, the plans often come from third-party financing companies that make money by charging retailers a small percentage of each sale made through their financing options and by collecting late fees and interest from consumers.

Interest rates can be high — as high as 30 percent depending on your credit history and the retailer — and installments can last for years, BBB says.

Here are some tips BBB recommends as you shop online:

Don’t forget you are borrowing money. “Even though many installment payment services come with only a few small payments and zero-percent interest, it’s critical you keep in mind you are still borrowing money to enjoy a product before you’ve paid for it in full. Ask yourself if paying the total price means spending more than you can actually afford, and make your decision accordingly.”

Stick to your budget. “Think about how bi-weekly or monthly payments could affect your budget – even if the payments seem small. Will they cut into the funds you’ve set aside for necessary expenses, such as your rent or groceries?”

Read the fine print. “Before you sign up to pay in installments, be sure you understand exactly how the service works. Find out what company is financing your purchase, how long you have to pay off the purchase and in how many installments, how they handle late payments, and how much interest you’ll be charged, if any.”

Get to know the financing company. “If you do decide to take advantage of an installment payment plan, look up the financing company on BBB.org to make sure they are a reputable company with honest business practices. "

Know how your credit could be affected. “Keep in mind that unpaid debts can be sent to collections agencies and after a delinquent period of 90 days can be reported to credit bureaus. This could have a negative impact on your credit score.”

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