What shoppers should know about 'buy now, pay later' option

PHILADELPHIA (WPVI) -- You see them pop up when you are shopping online, those "buy now and pay later" buttons. From Black Friday through Cyber Monday, "buy now, pay later" payments jumped more than 70%.

But before using that option, you need to be aware of the pitfalls.

"Buy now, pay later is a relatively new way of purchasing items. Instead of paying with a credit card or cash, you're actually paying with an installment plan," said Kimberly Palmer, personal finance expert at NerdWallet.

That plan breaks up the price into payments over several weeks, months, or longer. But there are some things to keep in mind, including possible fees, penalties, and more.

"In some cases there are fees, there's interest, and they're actually built into your installment payment plan. And you want to make sure you understand if you are taking on those additional costs or not," Palmer said.

Another thing to think about is purchase protection. When you buy something using a credit card, you have some protection if something goes wrong. That may not be the case with a "buy now, pay later" purchase.

"They don't really offer a type of purchase protection that is similar to a traditional credit card," said Lisa Gill, an investigative reporter with Consumer Reports.

They're also not subject to the same federal regulations. Consumer Reports surveyed 6,000 people on their purchase habits and found one in three have used "buy now, pay later," and about 28% have had an issue including with returns.

"You may wind up paying on the item still, even after you have returned it while you're waiting for this all to process," said Gill.

CR also says to be careful of "loan stacking" -- buying multiple items using multiple "buy now, pay later" options.

"It can get a little tricky to manage, especially if you have two or three or more loans," said Gill.

You're more likely to miss or be late on payments negatively impacting your credit history. You might also end up spending more money than you can afford, driving yourself into debt, and later unable to dig yourself out.

Action News spoke with several of the big "buy now, pay later" companies. They said they do not charge late fees or interest but consumers really need to read the fine print because plans vary widely. Also, some offer more transparency than others by providing full disclosure statements at check-out.