Apple Enters the Buy Now, Pay Later Market with Unique Features

Apple is venturing into the buy now, pay later market with a distinct approach that sets it apart from existing options. The company's installment loan service, integrated with Apple Pay and facilitated by MasterCard, will roll out to select consumers this spring. Here's what you need to know about this new offering:

　　Key Points:

　　Apple's buy now, pay later service will require debit card and bank account usage for payments, eliminating the option of using a credit card.Unlike other providers, Apple will not impose flat or percentage late fees. However, missed payments may result in the loss of access to future loans.The service will offer fraud and consumer protections through MasterCard's existing pay-by-installment model.Purchases made using Apple's buy now, pay later service will be reported to credit bureaus in the fall, potentially impacting credit scores.

　　How Does Buy Now, Pay Later Work?

　　Buy now, pay later services, often marketed as "interest-free loans," require users to download an app, link a bank account or debit/credit card, and sign up for weekly or monthly installment payments. Some companies, like Klarna and Afterpay, perform soft credit checks before approving borrowers. Apple's service will follow a similar process, with most users receiving approval within minutes. Scheduled payments are automatically deducted from the user's bank account or charged to their card.

　　These services typically don't charge more than what the customer would have paid upfront, meaning there's no interest as long as payments are made on time. However, late payments may incur flat fees or fees calculated as a percentage of the total owed, potentially reaching as high as $34 plus interest. Multiple missed payments can lead to being shut out from the service, and the delinquency could negatively impact the user's credit score.

　　Apple's Approach: No Late Fees, Credit Bureau Reporting

　　Apple's buy now, pay later product stands out by eliminating late fees, whether flat or percentage-based. Instead, missed payments will be reported to credit bureaus, potentially affecting credit scores. Users who wish to defer payments or set up a different payment plan can contact support, a feature offered by several other services.

　　Are Purchases Protected?

　　In the United States, buy now, pay later services are not currently covered by the Truth in Lending Act, which regulates credit cards and other types of loans. This means that resolving disputes with merchants, returning items, or getting money back in cases of fraud may be more challenging. Companies can offer protections, but they are not obligated to do so. Apple's protections are provided through MasterCard.

　　Lauren Saunders, associate director at the National Consumer Law Center, advises against linking a credit card to buy now, pay later apps. Doing so eliminates the protections offered by the credit card while potentially incurring interest charges from the card company. She recommends using the credit card directly for stronger protections.

　　Other Risks to Consider

　　Since buy now, pay later purchases are not centrally reported, they may not appear on credit profiles with major credit rating agencies. This can lead to multiple loans from different companies without the lenders being aware of the total debt. While on-time payments are not reported to credit rating agencies, missed payments are.

　　Elyse Hicks, consumer policy counsel at Americans for Financial Reform, emphasizes the importance of carefully considering the long-term affordability of buy now, pay later purchases. She cautions against using these services to acquire items that may become unaffordable in the future, especially in light of current inflation.

　　Why Do Retailers Offer Buy Now, Pay Later?

　　Retailers embrace buy now, pay later services despite backend fees because these products increase cart sizes. Shoppers are more likely to make larger purchases when given the option to pay in installments.

　　Who Should Use Buy Now, Pay Later?

　　Buy now, pay later loans can be a relatively healthy, interest-free form of consumer credit for those who can make all payments on time. However, credit cards are a better choice for building credit scores and accessing strong legal protections against fraud.

　　Economic Instability and Buy Now, Pay Later

　　As the cost of living rises, some consumers are using buy now, pay later services for essential purchases like groceries and gas. This trend raises concerns among financial advisors, and recent data shows a sharp increase in delinquencies on buy now, pay later apps. The long-term impact of these services amid economic instability remains to be seen.

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