Holiday Shoppers Beware! Buy Now Pay Later and Deferred Interest Credit Cards Hold Hidden Dangers

December 2, 2024 — Press Release

New brief explains new protections for BNPL users, offers tips for consumers considering BNPL and no-interest credit card promotions

BOSTON – As holiday shopping kicks into high gear, National Consumer Law Center (NCLC) advocates are warning of dangers lurking in financial promotions that seem too good to be true. Buy now, pay later (BNPL) purchases are safer now due to new protections from the Consumer Financial Protection Bureau (CFPB). But BNPL credit and deferred interest promotions on credit cards still often hold hidden traps that make products vastly more expensive and push consumers into a cycle of debt. 

“Don’t let deceptive financial promotions and huge, delayed charges ruin your holidays,” said Chi Chi Wu, senior attorney at the National Consumer Law Center. “If an offer looks too good to be true, it probably is, and you could be paying the financial consequences well into the next year and beyond. 

“Buy now, pay later users have more protection this holiday season if they don’t get what they paid for due to new Consumer Financial Protection Bureau rules. But the option to buy now, pay later can make unaffordable purchases look cheaper than they are. Deferred interest credit card promotions contain an especially risky hidden time bomb,” said Lauren Saunders, associate director at the National Consumer Law Center.

BNPL products, increasingly popular with younger consumers, let customers pay some at checkout and more in subsequent payments. For example, in the “pay-in-four” option, one-quarter of the price is due at checkout followed by three additional payments, typically every two weeks for the next six weeks. BNPL credit can be accessed when paying for a purchase online; through apps provided by BNPL companies; and through BNPL debit cards. Once a consumer signs up to use BNPL credit for a purchase, they typically must create an account with that BNPL company. That BNPL account can be used repeatedly, just like credit cards can be. 

As explained in a new National Consumer Law Center issue brief, the CFPB has adopted a rule that improves protections for BNPL users, requiring some of the same protections as credit cards, including clear disclosures, statements, the right to dispute charges and errors, and adequate time to make a payment and avoid late fees. 

“The new rules by the Consumer Financial Protection Bureau make buy now, pay later credit safer, but President-Elect Trump and the incoming Congress are reportedly considering limiting the consumer watchdog’s power to protect consumers,” Saunders noted.

Even with the new protections, BNPL products can still lead to unaffordable debt, late fees and overdraft fees, and complicated repayment dates. 

Deferred interest promotions entice consumers with promises such as “no interest for 12 months” or “0% interest until December 2025.” But unless consumers pay off the entire balance before the promotional period ends, they can be hit with a huge lump sum interest charge that goes back to the date they bought the item, even on amounts that have already been paid off. For example, if a consumer buys a $2,500 laptop on November 29, 2024 using a one-year 31% APR deferred interest plan, then pays off all but $100 by November 29, 2025, the lender will add to the next bill about $430 in interest on the entire $2,500 dating back one year. 

Saunders advises consumers considering BNPL credit to: 

• Consider forgoing purchases that cannot be paid for in full. 
• Consider an installment loan or credit card installment payments instead. 
• Be aware of all fees and hesitate before signing up for subscriptions. 
• Keep careful track of all payment dates. 
• Avoid multiple BNPL purchases per month and pay attention to total BNPL debt. 
• Know your right to cancel automatic payments and subscriptions. 

(See Issue Brief for more details.)

With respect to so-called “interest free” credit card promotions, Wu advises:

• Avoid deferred interest promotions. If you have enough funds to pay off a purchase immediately, there is no need to carry a credit card balance and risk getting hit with a wallop of deferred interest. If you do need to pay for a holiday purchase over time, consider using a mainstream credit card or an installment loan.
• Do not juggle multiple deferred interest purchases on the same credit card. If you do end up using a deferred interest promotion, do not make a second purchase with that same card. Consumers frequently get confused and end up getting hit with deferred interest when juggling multiple promotions.
• Pay more than the minimum payment each month. If you do already have a deferred interest promotion, the minimum payment will NOT pay off the entire purchase by the end of the promotional period. Take the purchase price and divide it by the number of months in the promotional period minus one. Make sure your payments are equal to or more than that amount each month. 

Related Resources

• Consumer Financial Protection Bureau
• Issue Brief: New Rights for Buy Now Pay Later Purchases
• Report: Deceptive Bargain: The Hidden Time Bomb of Deferred Interest Credit Cards 
• Surviving Debt, consumer book available free online.