What you need to know about Apple’s Buy Now, Pay Later | Smart Change: Personal Finance
Earlier this week, at its Worldwide Developers Conference, Apple announced the launch of a new feature called Apple Pay Later — a sort of “buy now, pay later” plan. The feature allows users to split Apple Pay purchases into equal installments at no cost.
Although there have been rumors of a cooling-off period for explosive buying now, and a push later for the industry, Apple’s entry into the market suggests this type of short-term installment loan is here to stay. And with millions of people already using Apple Pay, more borrowers will be able to buy now, and pay later as the cost of goods rises and household budgets tighten.
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Buy now, pay later can be an affordable way to borrow money, but potential users should consider the risks of taking on this type of debt.
How will Apple Pay Later work?
Apple Pay Later divides your total purchases into four equal installments that are payable over six weeks, with no interest or fees, according to a company press release.
It’s similar to plans offered by others Buy Now, Pay Later for providers like PayPal, Afterpay, and Klarna. The first payment is due on repayment and the remaining three payments are due every two weeks until the loan is paid in full.
For example, if your purchases are $100, you pay $25 at checkout, then you have three remaining payments of $25, each due for two weeks, for a total payment period of six weeks.
By eliminating interest and fees, Apple is an automatic buy now, pay later. Although a few current providers charge interest on a payment plan on four, many do charge for a late or missed payment.
To use Apple Pay Later, borrowers must apply first, and this can be done when paying with Apple Pay or through the Wallet app. Apple did not mention the underwriting criteria in its press release. However, most providers buy now and pay later do not require a minimum credit score, making it an option for applicants with bad credit or no credit. Once users are approved and signed up for a payment plan, they can view and manage upcoming payments in the Wallet app.
Payments must be linked to the debit card, which may be automatically billed. Apple will send reminders before the automatic payment is processed.
Apple Pay Later will be available everywhere Apple Pay is accepted online or within 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 the Buy Now, Pay Later plan
Most financial experts urge caution when it comes to buying now, and paying later. Although it seems easy to distribute the purchase at no additional cost, borrowing is risky, especially for things you do not need.
One of the biggest concerns about buy now, pay later plans is overspending. The instant gratification built into these plans could lead to a splurge that you ultimately regret, says Charles Ho, a certified financial planner based in Folsom, California.
“With cash, we’re more in line with whether what we’re buying is worth what we’re paying,” he says. “Whereas if we don’t have that pain to pay right away, our value radar will be rolled out. 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 get left behind, especially if you’re managing multiple purchases now, and pay later loans simultaneously. Although Apple may not charge a fee for failed payments, your bank or credit union will likely withdraw the debit card associated with Apple Pay later. In addition, some lenders to buy now and pay later may report late payments to credit bureaus, which can hurt your credit score.
Finally, there are growing concerns about a lack of regulation over plans to buy now and pay later. In December 2021, the Consumer Financial Protection Bureau opened an investigation into some of the largest providers, citing data collection, debt accumulation and consumer protection concerns. However, the bureau has not yet released its findings.
Ho says, buy now, pay later isn’t always a bad option for those who want more payment flexibility and can afford the premiums. However, he recommends taking some time before approving the loan.
“If you want to take advantage of the zero interest and spread out payments, I would say, sleep on the purchase for one night,” he says. “If you still really want it tomorrow, and can make the payments, go ahead.”