Examining the pros and cons of the option to buy now, but pay later

A MARTÍNEZ: This year, holiday shopping is expected to shatter records. The National Retail Federation is predicting sales during November and December could grow as much as 10.5% percent over 2020, which set records by the way. Americans could shell out as much as $859 billion bucks. And one way shoppers may purchase those gifts is with the buy-now, pay-later option. Here to lay out the potential pros and cons with that is The Washington Post's personal finance columnist, Michelle Singletary. Michelle, all right, these buy-now, pay-later programs, how do they typically work?

MICHELLE SINGLETARY: So typically, you know, at a point of purchase, either online or in the store, you'll see something that says, hey, you can make these payments over time. There's a quick check. Maybe there's a small fee. And then you would pay for that purchase, you know, over every two weeks or every month or, you know, as much as six months. It's a way for retailers to get people to spend and, oftentimes, spend more than they probably should.

MARTÍNEZ: So what's the biggest difference, would you say, Michelle, between that and just adding another charge on my credit card, on my - say, my Visa or my AmEx?

SINGLETARY: So although these are loans, they're not the typical loans, the credit cards. So many of the platforms don't charge any interest unless - depending on how long you take to pay it. So you don't have to get a credit card. You feel like you're not in debt, even though it's still a loan. And it gives people a chance to buy something who may not normally qualify for a regular credit card.

MARTÍNEZ: Then this is something that doesn't build your credit over time 'cause I remember when I was getting my first credit card, Michelle, my mom would tell me, well, if you do well with this, you know, your credit gets better over time. So buy-now, pay-later doesn't sound like that at least is part of the option.

SINGLETARY: That's exactly right. Here's the thing, though. If you miss one of those payments, they may report it to the credit bureau. So there's no upside to having it, but there is a downside if you don't make those payments. And lots of people don't end up making those regular payments.

MARTÍNEZ: Could it possibly, though - even though you mentioned some of the downsides, could this be something that helps maybe younger purchasers, Gen Z purchasers, with fiscal responsibility, to learn how to exist in this financial space?

SINGLETARY: OK, so you know you asked me, right?

(LAUGHTER)

SINGLETARY: I'm a mama. I have three 20-something-year-old young adults. And I would not recommend they do this. If you had that cash in your pocket and you're like, OK, I don't think I should do this 'cause this is a lot of cash, that's a sign that you shouldn't use that. Now, having said that, I can understand that there's some people who are doing OK financially and they maybe want to get their kids something for Christmas and they need a little bit of time. Perhaps that might work for you. But generally speaking, if you don't have the cash now, you probably shouldn't be doing this.

MARTÍNEZ: Now, for people, though, who do decide to use these services, Michelle, what's the safest way to do it?

SINGLETARY: So if you sign up for it - many of them have apps. You want to sign up for the apps 'cause they will then send you reminders. The key thing is you want to make sure that you make the payments and make them on time because you don't want the negativity of not having paid reported to the credit bureaus. And if you can, you know, put the money aside. Say you took the option to pay it off in two months or three months, but you have the money now; it came in. Put it in the bank. Put it in the account where the money's going to be pulled from so that it's already there, ready to be - make those payments when they come due.

MARTÍNEZ: That's The Washington Post personal finance columnist Michelle Singletary. Michelle, thank you.

SINGLETARY: You're so welcome.

(SOUNDBITE OF KING PALMER'S "HOLIDAY PLAYTIME") Transcript provided by NPR, Copyright NPR.