• About Us
  • Get Insights to Your Inbox
Monday, June 2, 2025
Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors
Search in posts
Search in Author
Search Events
Filter by Categories
Action Learning
Artificial Intelligence in Business
Book Club
Books
BU Today
Business Challenges
Business Education
Business Functions
Business Policy & Markets
Corporate Strategy
Digital Business
Digital Business Institute
Diversity, Equity & Inclusion
Entrepreneurship & Innovation
Events
Expert Take
Feature
Finance & Accounting
Future of Business Education
Future of Work
Global Media
Harvard Business Review
Health, Biopharma, & Health-Tech
Human Resources Policy Institute
Innovation
Insights Live
Institute for Sustainable Energy
Journals
Language of Business
Leadership & Management
Local Media
Marketing
Media Mention
Multimedia
National Media
Newsletter Spotlight
Op-Ed
Operations
Opinion
Our Insights
Partners in Business Ethics
Podcast
Publications
Research Institutes
Risk
ScienceDirect
Silicon Valley Bank
Sloan Management Review
Social Impact
Special Series
Susilo Institute for Ethics in the Global Economy
Technology
The Brink
Thinkers50@BUQuestrom: Passion & Purpose
Videos
Insights@Questrom
  • Our Insights
    • All
    • Business Challenges
    • Business Education
    • Business Functions
    Boston dockworkers among thousands on strike nationwide 

    High tariffs, immigration crackdown, funding cuts: BU professor warns of ‘Trump Trifecta’ 

    Sen. Elizabeth Warren and Rep. Madeleine Dean demand food and beverage CEOs put a stop to ‘shrinkflation’ 

    Mass. leaders worried for seniors and kids as Trump agenda bill clears House 

    What Is ‘Big Law?’ 

    Stop Making Cents: US Mint Moves Forward With Plans to Kill the Penny 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How Retailers Can Capitalize on the “Refund Effect”

    Could the GPT Store Turn ChatGPT into a Platform Powerhouse? 

    The Right Amount of Cards, Cash and ID to Carry in Your Wallet

    The ‘Best and Final’ Job Offer Usually Isn’t Final. How You Can Negotiate 

    From Hollywood to the Hardware Store: The Real-World Impact of a 100% Tariff 

    From Hollywood to the Hardware Store: The Real-World Impact of a 100% Tariff 

    Bank Failures Show Us What Not to Do with Our Own Finances

    Bank Failures Show Us What Not to Do with Our Own Finances

  • Videos & Podcast
    • All
    • Podcast
    • Videos
    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Tariffs and Their Economic Impact

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Navigating Internet Privacy: Unpacking Cookies, Dark Patterns, and Future Data Protection Challenges (2)

    Beyond Prototypes: Rethinking Innovation in Complex Ecosystems with Prof. Douglas Hannah

    Beyond Prototypes: Rethinking Innovation in Complex Ecosystems with Prof. Douglas Hannah

    Is Business Broken? Season 2 out now! 

    Is Business Broken? Season 2 out now! 

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Redefining Retirement: Navigating Emotional and Social Transitions with Insightful Strategies

    Life After Cookies: Who Uses Google’s Privacy Sandbox? – Garrett Johnson

    Life After Cookies: Who Uses Google’s Privacy Sandbox? – Garrett Johnson

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Real Estate Ripples from a Landmark Settlement

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    The Hidden Wisdom of Cultural Pushback

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Fusion Strategy: Navigating the Industrial Evolution

  • Insights Events
    • Events
    • Insights Live
    • Questrom Institute Events
  • In the Media
    • All
    • BU Today
    • Global Media
    • Local Media
    • National Media
    • Op-Ed
    • The Brink
    Boston dockworkers among thousands on strike nationwide 

    High tariffs, immigration crackdown, funding cuts: BU professor warns of ‘Trump Trifecta’ 

    Sen. Elizabeth Warren and Rep. Madeleine Dean demand food and beverage CEOs put a stop to ‘shrinkflation’ 

    Mass. leaders worried for seniors and kids as Trump agenda bill clears House 

    What Is ‘Big Law?’ 

    Stop Making Cents: US Mint Moves Forward With Plans to Kill the Penny 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How Retailers Can Capitalize on the “Refund Effect”

    Could the GPT Store Turn ChatGPT into a Platform Powerhouse? 

    The Right Amount of Cards, Cash and ID to Carry in Your Wallet

    The ‘Best and Final’ Job Offer Usually Isn’t Final. How You Can Negotiate 

    Bank Failures Show Us What Not to Do with Our Own Finances

    Bank Failures Show Us What Not to Do with Our Own Finances

    In a ‘work-from-anywhere’ world, where are people working?

    79,000 lost jobs. $13 billion in GDP gone. Study tallies potential hit to Mass. from Trump’s ‘economic attack.’

    The Hidden Risk of Getting Paid in Stock Options 

    Trump Administration Cancels Scores of Grants to Study Online Misinformation 

  • Publications
    • All
    • Books
    • Harvard Business Review
    • Journals
    • Sloan Management Review
    How Retailers Can Capitalize on the “Refund Effect”

    Could the GPT Store Turn ChatGPT into a Platform Powerhouse? 

    How Retailers Can Capitalize on the “Refund Effect”

    How to Monetize Volunteer-Driven Platforms 

    How Retailers Can Capitalize on the “Refund Effect”

    Leading Global Teams Effectively 

    How Retailers Can Capitalize on the “Refund Effect”

    Research: When Prototypes Don’t Yield Useful Insights 

    Transforming Products into Platforms: Unearthing New Avenues for Business Innovation

    Transforming Products into Platforms: Unearthing New Avenues for Business Innovation

    How Retailers Can Capitalize on the “Refund Effect”

    We’re Still Lonely at Work

    How Retailers Can Capitalize on the “Refund Effect”

    17 Team-Building Activities for In-Person, Remote, and Hybrid Teams

    3 Ways to Support Employees with Bipolar Disorder

    3 Ways to Support Employees with Bipolar Disorder

    Will That Marketplace Succeed?

    Will That Marketplace Succeed?

  • Questrom Book Club
Insights@Questrom
  • Our Insights
    • All
    • Business Challenges
    • Business Education
    • Business Functions
    Boston dockworkers among thousands on strike nationwide 

    High tariffs, immigration crackdown, funding cuts: BU professor warns of ‘Trump Trifecta’ 

    Sen. Elizabeth Warren and Rep. Madeleine Dean demand food and beverage CEOs put a stop to ‘shrinkflation’ 

    Mass. leaders worried for seniors and kids as Trump agenda bill clears House 

    What Is ‘Big Law?’ 

    Stop Making Cents: US Mint Moves Forward With Plans to Kill the Penny 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How Retailers Can Capitalize on the “Refund Effect”

    Could the GPT Store Turn ChatGPT into a Platform Powerhouse? 

    The Right Amount of Cards, Cash and ID to Carry in Your Wallet

    The ‘Best and Final’ Job Offer Usually Isn’t Final. How You Can Negotiate 

    From Hollywood to the Hardware Store: The Real-World Impact of a 100% Tariff 

    From Hollywood to the Hardware Store: The Real-World Impact of a 100% Tariff 

    Bank Failures Show Us What Not to Do with Our Own Finances

    Bank Failures Show Us What Not to Do with Our Own Finances

  • Videos & Podcast
    • All
    • Podcast
    • Videos
    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Tariffs and Their Economic Impact

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Navigating Internet Privacy: Unpacking Cookies, Dark Patterns, and Future Data Protection Challenges (2)

    Beyond Prototypes: Rethinking Innovation in Complex Ecosystems with Prof. Douglas Hannah

    Beyond Prototypes: Rethinking Innovation in Complex Ecosystems with Prof. Douglas Hannah

    Is Business Broken? Season 2 out now! 

    Is Business Broken? Season 2 out now! 

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Redefining Retirement: Navigating Emotional and Social Transitions with Insightful Strategies

    Life After Cookies: Who Uses Google’s Privacy Sandbox? – Garrett Johnson

    Life After Cookies: Who Uses Google’s Privacy Sandbox? – Garrett Johnson

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Real Estate Ripples from a Landmark Settlement

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    The Hidden Wisdom of Cultural Pushback

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Fusion Strategy: Navigating the Industrial Evolution

  • Insights Events
    • Events
    • Insights Live
    • Questrom Institute Events
  • In the Media
    • All
    • BU Today
    • Global Media
    • Local Media
    • National Media
    • Op-Ed
    • The Brink
    Boston dockworkers among thousands on strike nationwide 

    High tariffs, immigration crackdown, funding cuts: BU professor warns of ‘Trump Trifecta’ 

    Sen. Elizabeth Warren and Rep. Madeleine Dean demand food and beverage CEOs put a stop to ‘shrinkflation’ 

    Mass. leaders worried for seniors and kids as Trump agenda bill clears House 

    What Is ‘Big Law?’ 

    Stop Making Cents: US Mint Moves Forward With Plans to Kill the Penny 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How Retailers Can Capitalize on the “Refund Effect”

    Could the GPT Store Turn ChatGPT into a Platform Powerhouse? 

    The Right Amount of Cards, Cash and ID to Carry in Your Wallet

    The ‘Best and Final’ Job Offer Usually Isn’t Final. How You Can Negotiate 

    Bank Failures Show Us What Not to Do with Our Own Finances

    Bank Failures Show Us What Not to Do with Our Own Finances

    In a ‘work-from-anywhere’ world, where are people working?

    79,000 lost jobs. $13 billion in GDP gone. Study tallies potential hit to Mass. from Trump’s ‘economic attack.’

    The Hidden Risk of Getting Paid in Stock Options 

    Trump Administration Cancels Scores of Grants to Study Online Misinformation 

  • Publications
    • All
    • Books
    • Harvard Business Review
    • Journals
    • Sloan Management Review
    How Retailers Can Capitalize on the “Refund Effect”

    Could the GPT Store Turn ChatGPT into a Platform Powerhouse? 

    How Retailers Can Capitalize on the “Refund Effect”

    How to Monetize Volunteer-Driven Platforms 

    How Retailers Can Capitalize on the “Refund Effect”

    Leading Global Teams Effectively 

    How Retailers Can Capitalize on the “Refund Effect”

    Research: When Prototypes Don’t Yield Useful Insights 

    Transforming Products into Platforms: Unearthing New Avenues for Business Innovation

    Transforming Products into Platforms: Unearthing New Avenues for Business Innovation

    How Retailers Can Capitalize on the “Refund Effect”

    We’re Still Lonely at Work

    How Retailers Can Capitalize on the “Refund Effect”

    17 Team-Building Activities for In-Person, Remote, and Hybrid Teams

    3 Ways to Support Employees with Bipolar Disorder

    3 Ways to Support Employees with Bipolar Disorder

    Will That Marketplace Succeed?

    Will That Marketplace Succeed?

  • Questrom Book Club
Insights@Questrom
Home Our Insights Business Challenges Business Policy & Markets

Buying gifts? Why ‘buy now, pay later’ could be a dangerous option for many holiday shoppers

Jay ZagorskybyJay Zagorsky
December 19, 2022
in Business Policy & Markets
23
0
Buying gifts? Why ‘buy now, pay later’ could be a dangerous option for many holiday shoppers

Gift-giving can be a joyful part of the holiday – unless it leads to a raft of late fees. DNY59/E+ via Getty Images

Share on FacebookShare on TwitterShare on LinkedIn

Gift-givers hoping to splurge this holiday season despite the pinch of high inflation have an easy option: buy now, pay later.

An ever-growing number of financial companies and apps are offering consumers what are essentially small, short-term loans that combine instant gratification with interest- and fee-free payments spread out in the new year.

As an economist who studies holiday spending, I became intrigued with buy now, pay later plans while researching a book on the transition to a cashless society. I only heard about them in the past two or so years, but now many of my students are considering using the plans to buy holiday gifts. I wondered, are these offers too good to be true?

‘Tis the season

Consumer spending surges around the holidays as many people buy gifts for their loved ones, often to put under a Christmas tree.

This year, U.S. consumers are expected to spend nearly US$1 trillion – which would be a record amount – in November and December. That typically amounts to about 25% of all retail sales during the year as consumers increase their spending. Per person, that averages to about $830.

In the old days, before credit cards, consumers had few options to account for this surge in holiday spending – beyond simply setting aside personal savings. Some banks offered so-called Christmas savings clubs, in which customers could make automatic deposits throughout the year that they could use for gifts at the end. To ensure accounts were not raided early, there were financial penalties for early withdrawals. These penalties were then distributed to people who waited longer for their savings.

Retailers, for their part, created the layaway plan, which allowed consumers to reserve a product in return for a down payment, with further payments made throughout the year.

Credit cards came about in the 1950s, with Diners Club being the first multipurpose card. They allowed consumers to buy stuff and worry about paying for it later. The catch, of course, is that you have to pay the balance within a very short window to avoid high interest charges.

Buy now …

Buy now, pay later plans would seem to offer the best of both worlds: the ability to buy something immediately but without any cost – as long as you make payments on time.

Even better, many companies say they don’t check credit bureaus to decide who gets to participate in these plans, instead using their own algorithms to determine who might be a credit risk. This means people without any credit history like teenagers or new immigrants may be able to take advantage of these plans. It also means people who have maxed out their credit cards can also participate. About three-quarters of all applicants are approved almost immediately.

The general idea is simple: When you see something to purchase, you pay 25% immediately, then make three more payments every two weeks. In six weeks, the purchase is paid off.

The market for these types of loans is growing fast. The Consumer Financial Protection Bureau recently surveyed five lenders, including PayPal and Afterpay, that offer buy now, pay later plans and found that the total volume of such loans they offered surged from $2 billion in 2019 to $24 billion in 2021. One estimate suggests the total market will hit $1 trillion by 2025.

A 2021 survey found that electronics are the most popular item to purchase using buy now, pay later, followed by clothing and fashion items.

Given these companies charge no interest and no fees, how do they make money?

Two ways: They typically charge merchants a percentage of every purchase, and customers who are unable to complete their payments on time pay late fees.

Pay more later?

There are several downsides to buy now, pay later schemes.

One is that they can cause consumers to become overextended and spend more than they can fundamentally afford. One reason is the ease of signing up for these loans, which may take only a few clicks. A second is that the price may seem lower than it actually is because users may only see the per-payment rather than the total cost of the item.

The CFPB found that about 11% of borrowers were charged at least one late fee in 2021, which suggests they overspent. Late fees are typically around $7, which is about 5% of the average loan size of $135.

Another problem is these payment plans are not very forgiving when people get into financial trouble. About 90% of these loans are tied to a debit card, which means the payments are automatically deducted from the borrower’s bank account. So when someone misses a payment, it’s likely because there were insufficient funds in their account. Besides the late fee, these borrowers will also end up getting charged an overdraft fee. As a result, research has found that new users of buy now, pay later loans experience a rapid increase in overdraft charges.

While gift-giving over the holidays is an important part of the season, my advice is to be careful when taking advantage of these buy now, pay later loans. Don’t overextend yourself financially. If you are thinking about taking one of these loans, make sure you can really afford the payments.

Giving a gift that makes someone else happy but ruins your financial life is not a great trade-off.

 

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Tags: Consumer SpendingHolidaysJay Zagorsky
Jay Zagorsky

Jay Zagorsky

Jay Zagorsky is Clinical Associate Professor in Markets, Public Policy, & Law and is a cross-disciplinary researcher who has spent over two decades of researching a wide variety of personal wealth topics. He tries to explain why some people become rich, others are poor and some move between these two states. He is currently synthesizing this research into a book that presents the results of his academic research and other wealth researchers in an accessible format.

Related Insights

Sen. Elizabeth Warren and Rep. Madeleine Dean demand food and beverage CEOs put a stop to ‘shrinkflation’ 
Business Challenges

Mass. leaders worried for seniors and kids as Trump agenda bill clears House 

May 23, 2025
What Is ‘Big Law?’ 
Business Policy & Markets

Stop Making Cents: US Mint Moves Forward With Plans to Kill the Penny 

May 22, 2025
Push to roll back electric vehicle subsidies brings uncertainty for automakers 
Business Challenges

Lower gas, oil prices ‘a good news story for America’ amid inflation, tariff uncertainty 

April 10, 2025
State Laws Banning Abortion Linked to Increases in Mental Health Issues
Business Policy & Markets

Brink Bites: Studying Cigarette Restrictions, the Life of a Famed Poet, and Shifting Attitudes Toward Capitalism 

March 4, 2025
Could $5,000 DOGE stimulus checks really happen? Here’s what economists say 
Business Challenges

Could $5,000 DOGE stimulus checks really happen? Here’s what economists say 

March 2, 2025
Wendy’s plans to roll out dynamic pricing
Business Policy & Markets

Will Americans get $5,000 checks from DOGE savings like Trump, Musk claim? 

February 25, 2025

Upcoming Events

June 2025
Jun 07 2025

Mayor WU, BU Questrom Team Up to Host Civic Summit 2025

Boston University Questrom School of Business
No event found!

Get Our Insights Newsletter

Get Insights straight to your inbox by signing up now.

    Popular Insights

    • I’m a business professor who asked dozens of former students how they define success. Here are their lessons for today’s grads

      I’m a business professor who asked dozens of former students how they define success. Here are their lessons for today’s grads

      11 shares
      Share 4 Tweet 3
    • Massachusetts Economy at Risk from Trump Administration Policies  

      18 shares
      Share 7 Tweet 5
    • Why did Hertz just announce it was selling EVs and recording a massive loss? 

      68 shares
      Share 27 Tweet 17
    • Poets&Quants Names Two Questrom Students 2025 Best & Brightest MBAs

      7 shares
      Share 3 Tweet 2
    • How much profit do fireworks stands make?

      307 shares
      Share 123 Tweet 77

    Boston University Questrom School of Business
    595 Commonwealth Avenue
    Boston, MA 02215

    Follow Us

    Newsletter

    © 2023 Trustees of Boston University

    • About Us
    • Digital Business Institute
    • Human Resource Policy Institute
    • Susilo Institute for Ethics in the Global Economy

    Welcome Back!

    Sign In with Linked In
    OR

    Login to your account below

    Forgotten Password?

    Retrieve your password

    Please enter your username or email address to reset your password.

    Log In

    Add New Playlist

    Generic selectors
    Exact matches only
    Search in title
    Search in content
    Post Type Selectors
    Search in posts
    Search in Author
    Search Events
    Filter by Categories
    Action Learning
    Artificial Intelligence in Business
    Book Club
    Books
    BU Today
    Business Challenges
    Business Education
    Business Functions
    Business Policy & Markets
    Corporate Strategy
    Digital Business
    Digital Business Institute
    Diversity, Equity & Inclusion
    Entrepreneurship & Innovation
    Events
    Expert Take
    Feature
    Finance & Accounting
    Future of Business Education
    Future of Work
    Global Media
    Harvard Business Review
    Health, Biopharma, & Health-Tech
    Human Resources Policy Institute
    Innovation
    Insights Live
    Institute for Sustainable Energy
    Journals
    Language of Business
    Leadership & Management
    Local Media
    Marketing
    Media Mention
    Multimedia
    National Media
    Newsletter Spotlight
    Op-Ed
    Operations
    Opinion
    Our Insights
    Partners in Business Ethics
    Podcast
    Publications
    Research Institutes
    Risk
    ScienceDirect
    Silicon Valley Bank
    Sloan Management Review
    Social Impact
    Special Series
    Susilo Institute for Ethics in the Global Economy
    Technology
    The Brink
    Thinkers50@BUQuestrom: Passion & Purpose
    Videos
    • Business Challenges
      • Business Policy & Markets
      • Digital Business
      • Diversity, Equity & Inclusion
      • Entrepreneurship & Innovation
      • Future of Work
      • Health, Biopharma, & Health-Tech
      • Risk
      • Social Impact
    • Business Functions
      • Corporate Strategy
      • Finance & Accounting
      • Innovation
      • Leadership & Management
      • Marketing
      • Operations
      • Technology
    • Publications
      • Journals
      • Harvard Business Review
      • Sloan Management Review
    • Insights Events
      • All Events
      • Insights Live
      • Questrom Institute Events
    • Videos & Podcast
      • Videos
      • Insights@Questrom Podcast
      • Podcast
    • Voices in the Media
    • Our Experts

    © 2023 Trustees of Boston University

    -
    00:00
    00:00

    Queue

    Update Required Flash plugin
    -
    00:00
    00:00