Buy now, pay later

As people have been buying more and more things online, the landscape of consumer payments has evolved to squeeze every last dollar possible from consumers. Whether it is Venmo or PayPal charging a fee to transfer money into your bank account or the subscription model that retailers like Walmart have adopted, it can feel like you are always paying for more than you bargained for. Within the collection of digital companies lining their pockets through tacked-on fees are several prolific “buy now, pay later” services such as Klarna, Afterpay and Affirm. 

These companies typically offer consumers the choice of opting into a micro-loan during the checkout phase of an online purchase, suggesting that consumers split their purchases into several smaller payments over time. The most common offer that appears in the checkout phase is to split the purchase into four smaller payments, tricking your brain into thinking that you are only spending a quarter of what you really are. 

These services not only push people to spend beyond their financial means, but they have launched many consumers into nebulous amounts of debt that are difficult to keep track of. 

When a customer sees during checkout, or even on individual item listings, that they have the option to pay a smaller amount of money several times rather than a lump sum upfront, this checkout suggestion can make them feel that they are able to purchase more than they were intending to because the amount they are paying for today is less than they had planned on. This leads consumers to purchase more than they had planned, playing into the culture of dangerous overconsumption and accruing debt.

Due to the smaller amounts of these micro-loans, in comparison to something like a home or car loan, it can be easy to conceptualize that the future payments will be so small that they won’t make much of a difference in your future finances. 

If customers get into the habit of making multiple purchases through a micro-loan service on a monthly basis, they can quickly become tethered to monthly or biweekly debt payments. These services allow consumers to purchase more than they can immediately afford, giving them a stronger mood boost from
the purchases they are making.

As soon as a person subconsciously links that they feel happier when they make a purchase with one of these services, they will continue to do so more and more. 

This can quickly turn into a vicious spiral of saying “just one more” until they have made four months of purchases in the span of one month. 

While at first a four month long series of $45 payments to finance a clothes haul might feel insignificant, if someone took out five of these they would then be paying $225 a month for purchases they likely could not have responsibly afforded in the first place. 

These companies see record-high participation around the December holiday season, as consumers are purchasing decorations and gifts, and then see themselves in a financial hole that feels deeply inescapable. 

The impacts of utilizing “buy now, pay later” schemes to finance your shopping is now being seen by more conventional lenders, as consumers who utilize a service like Klarna or Afterpay end up being twice as likely as the average consumer to leave recurring debt, such as a car loan, unpaid. 

Many people would be quick to blame the woes of people in the depths of consumer debt on their own poor decision making skills; however, the companies preying on people who just want to afford something they want within the increasingly expensive economy of today are more to blame than any individual might be. 

Much like with student debt and credit card debt, consumers who have made financially inadvisable decisions by purchasing through these micro-loans are the victims of false promises of affordability made to them by companies participating in predatory behaviors. 

Beyond simply encouraging the overconsumption of material goods that contributes to our climate crisis, these “buy now, pay later” companies are participating in predatory practices that take advantage of ways that people mentally keep track of their finances in a way that puts more and more people
into consumer debt.