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What to know about 'buy now, pay later'

"Buy now, pay later" services, including Afterpay, Klarna, Uplift and Sezzle, are microloans that offer people a way to stretch out purchases.

INDIANAPOLIS — While shopping online, you might have noticed an extra payment option at checkout.

"Buy now, pay later" services, including Afterpay, Klarna, Uplift and Sezzle, are microloans that offer people a way to stretch out purchases.

Ted Rossman with Bankrate said services vary from payment term to interest rate.

"The typical flavor is four interest-free payments over six weeks," Rossman said. 

Right now, Amazon is offering a deal with its partner, Affirm. Now through Cyber Monday, shoppers can pay as little as zero percent for three months.

But choose a longer time frame and the interest rate can shoot up to 30%.

"Buy now, pay later range is right about what a credit card is charging," Rossman said. 

However, Affirm said it charges simple interest, not compound.

Like credit cards, you have to be careful not to overspend.

"I do worry about the mental accounting of like, Oh, that's not a $200 purchase anymore. That's just four easy payments of 50 bucks," Rossman said.

He added that the best case is isolating a big purchase that you would have made anyway. That might include furniture or exercise equipment. 

To get approved, it's a soft credit inquiry and soft inquiries don't ding your score.

"This year, all the major credit bureaus announced plans to integrate 'buy now, pay later' with credit reports. But they're not fully there yet," Rossman said. 

But that doesn't mean late payments go under the radar.

"If you fall seriously behind, you could get your credit dinged and sent to collections. So even though it's mostly outside the traditional credit system, there are still consequences to not paying it back," he said.

Should you want to take the items you ordered back altogether, it could take longer to get a refund.

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