Curiosity

While shopping online, as I [too] often do, I notice there are payment installment offers popping up on various retail platforms. Although I always ignore them, I was curious about what they were. I discovered the Buy Now Pay Later (BNPL) phenomenon and investigated further to see how they differed from traditional credit programs. One article reported that Gen Z shoppers are starting to gravitate away from traditional credit cards. That made me gasp. Like what do you do if you don't use cash or credit cards? ?

As a Baby Boomer, I literally grew up on credit cards. Lenders handed them out like playing cards on college campuses back in my day. So when I graduated, I left with a degree that ultimately landed me a $17,000 job and a stack of credit cards that amounted to almost $16,000 of debt. My parents had to perform plastic surgery on me (i.e., cut up and close every single card). So I was fascinated to learn more about BNPL and how Gen Zs have been finding ways to get around traditional loan sharks … er, credit card companies.

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What Is BNPL?

You know payday is just around the corner but it’s not coming fast enough to make this purchase. With retailers who offer BNPL plans, you don’t have to worry. You can purchase your goods on credit without a credit card.

Forbes has referred to BNPL plans as “instant approval point-of-sale loans .” ?If you’re wondering what the heck that means, think of it this way: You’ve done some shopping, and the bill is going to be expensive. Your credit card is already maxed out. You can’t use it. Your debit card has limited funds right now. You know payday is just around the corner but it’s not coming fast enough to make this purchase. At this point, your options are to try your credit card with fingers and toes crossed and hope the purchase goes through … or put some items back. But who wants to do that? With retailers who offer BNPL plans, you don’t have to. You can purchase your goods on credit without a credit card.

Say what now?

Yep, stores are saying, “Hey, don’t sweat it. We’ve got another option for you. Pay a little now, we’ll cover the rest, and you can pay us back in installments later over several weeks or months.” With traditional loans, you have to be approved first. But with most BNPL plans, a soft credit check is run on you, and you can be approved on the spot. Equifax says that many consumers can qualify for this service by providing basic information, including name, address, phone number, and birthday. Also different from traditional loans, these BNPL financing plans don’t typically come with upfront fees or interest. (Those usually kick in only if you miss a payment.)

Now your mama did warn you that if something sounds too good to be true, it just might be, right?

Now your mama did warn you that if something sounds too good to be true, it just might be, right? That may be the case here. According to Forbes, consumers shouldn’t be misled to think that BNPL loans are coming directly from the retailers themselves. When most retailers offer you a payment installment option, the plan is backed by a third-party company that is really loaning you the money (i.e., you’re financing your purchase through FinTech companies). Do any of these shop pay installment brands ring a bell - Shopify, Affirm, Afterpay, Sezzle, PayPal, Klarna, or Klama? These are some of the biggest players in the game right now.

In another Forbes article, research analyst Jordan McKee says, “[Because] most BNPL providers aren't financial institutions, generally, they need to borrow these funds to lend out and as interest rates associated with borrowing those funds increase ... it's costing them more money to extend money out to consumers and that puts pressure on their margins.” This could mean this payment plan may be a little unstable in a bad economy, which could result in extremely steep fines for missing a payment when these companies need their money back. (Sounds like my old traditional friends over at the credit card companies.)

It took a long time to regulate traditional financial institutions around credit lending practices. Apparently the U.S. government is starting to get concerned about the lack of regulations in this industry as well, and they’re concerned about the debt people are racking up through this type of payment plan.

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What does any of this have to do with you as a Black female professional?

?One thing that makes BNPL plans attractive is that they make purchasing more accessible for people who have traditionally been denied credit (a.k.a. non-white people, a.k.a. us!).

According to a study conducted in December 2020, 42% of Americans had used some sort of BNPL service. You could fall into this count. And one thing that makes BNPL plans attractive is that they make purchasing more accessible for people who have traditionally been denied credit (a.k.a. non-white people, a.k.a. us!). This form of payment is projected to grow and is particularly popular among Black and Hispanic adults . Forbes highlights that it’s easy to qualify for, there’s no hard credit pull, and it can help people manage their cash flow . On the negative side, BNPL plans inspire people to spend more, racking up lots of debt. In fact, the plan’s effectiveness in increasing volume of purchase is why most retailers offer it despite incurring high fees to do so. One study showed that 33% of BNPL users have made a late payment or incurred a late fee. And 47% of BNPL users say they are at least somewhat likely to make a late payment within the next year. Another study points out that while BNPL plans don’t help your credit score, they can hurt it — 72% of Americans saw their credit score drop after missing a BNPL payment .

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More employers are running a credit report on you before hiring you.

You do realize that more and more employers are running a credit report on you before hiring you, right? According to Nerd Wallet , “Employers sometimes check credit to get insight into a potential hire, including signs of financial distress that might indicate risk of theft or fraud. They don’t get your credit score, but instead see a modified version of your credit report.”

I can’t say whether BNPL is right for you or not , but at least now you know the ins and outs of it and how, if mismanaged, it could put you at risk career-wise. The next time you see the option, you can make an informed choice about it. If you know you can pay the installments off without incurring penalties, it sounds like a better option than putting it on your credit card that is going to charge you interest. But if you know you can’t control yourself when shopping, and you’re not certain you can cover those payments, and you’re in the middle of a job search, girl, maybe you should pump the brakes on buying the pumps and think twice about buying them now. The “pay later” price tag may be too high.

Level Up with Grace?is a weekly newsletter designed to equip Black women (and others) who want to unapologetically create a stellar career with the strategies, insights, and techniques needed to excel in corporate America. Executive coach Cheryl Grace shares a curation of thoughts, articles, profiles, trends, and tactics that can help women advance to their next professional level, wherever they are on their career journey.?Weekly emphasis on?Confidence,?Curiosity,?Case Studies?(Personal Profiles),?Connection?(Networking), or?Course of Action?(What to DO).?Please subscribe and/or share!

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