Richard Barington talks Labor Day Sale scams

Episode Transcript

Speaker 1 (00:00):
And welcome back to Alabama's Morning News. I'm John Mounts
in for JT. Well you heard it if you remember
the old show Wimpy from Popeye, I'll gladly pay you
on Tuesday for a Hamburger today. Well, people are doing
that a lot these days. And a financial expert is
warning against the hidden traps of buy now, pay later services.
Joining me now is Richard Barrington, a financial analyst from

(00:20):
Credit Assessame Richid, Welcome to the show.

Speaker 2 (00:22):
Well, thank you for having me on your program.

Speaker 1 (00:24):
It's Labor Day weekend and that means sale, sale, sale,
and if you can't afford it now, you can always
buy now and pay later. And these people are running
up pretty big bills. Richard, what kind of what's the
average price of an item that somebody is buying now
but paying later for?

Speaker 2 (00:38):
The average transaction, one study found was about one hundred
and forty two dollars. Now, that sounds harmless enough, but
on average, the typical buy now, pay later user takes
out nine and a half loans per year, and nearly
two thirds of those users have more than one buy now,

(00:58):
pay later loan going at the same in time, So
it kind of can add up to you know, fair
a burdensome amount of debt.

Speaker 1 (01:06):
And these are places. So this is place is more
like you see with the furniture store where they have
like the get a sofa now and you pay you
know in six months or that sort of thing.

Speaker 2 (01:16):
Yes, it is very much like that sort of thing,
except the reason it has exploded. One reason it's exploded
in popularity over the past few years is that it
used to be that a merchant, like the furniture store
in your example, would offer those terms, you know, to
try and get more customers to buy. But not all
merchants were willing to do that. However, now a number

(01:38):
of finance companies have decided to provide this service to
consumers and merchants. So what happens is you sign up
a lot of times right at the merchant for the
BNPL program. But the money is advanced to you by
this you know, third party finance company. They pay the
merchant upfront. You then have to make regular payments to

(02:01):
that finance company. And in the course of doing this,
of course, nobody does anything for nothing. The finance companies
are charging the merchants. To see, whenever somebody uses buy Now,
pay later at their store. And you know, since we
all know how business works, you can expect that in
one form or another, those costs are going to get

(02:23):
passed along to consumers eventually. Also, if you miss a payment,
and these payments usually are over a very compressed period
of time, you'll pay a fee. And since by now
pay later loans are for fairly small ticket items, and
over a short period of time, any fee can easily

(02:44):
add up to a really massive annual percentage rate.

Speaker 1 (02:47):
That's what I was going to say. With the truth
and lending laws, normally you have to disclose exactly what
you're going to pay over time, but it sounds like
if the terms are somewhat flexible, it's hard to say
on the front end how much the percentage could be,
but maybe they could disclose the maximum that they could be.

Speaker 2 (03:03):
Well, they probably don't do it in percentage terms. They
probably uh you know, would would say okay, if you
if you miss a payment, you know, there's a thirty
five dollars fee, just to use an example. But you
know the thing is that somebody's signing up for this
when they're in the middle of making a purchase online

(03:25):
or they're standing at the cash register at a store.
You know, they're probably not scrutinizing the terms as carefully
as they should. Plus, generally, when people sign up for credit,
they see something like, oh, there's a fee of I
pay late, but I won't do that, I won't miss
a payment, and of course, you know, a fair amount
of people actually do end up doing that well.

Speaker 1 (03:47):
And the thing is it's an emotional thing. You're not
engaging your your brain because you're just oh, but I
want this sofa. So let's say it's a very nice
five hundred dollars sofa and you're gonna make pay You
say out, buy it now, and then all start the
payments of a hundred dollars a month and three months
and get it paid off in five months. And if
you do that, well, on one hand, okay, then you
got your five hundred dollars sof and you pay for

(04:08):
it over five months. But at the same time, you know, two, three,
four months into it, you're like, you know, this sofa
and I still have to keep paying for it. And meanwhile,
you bought a chair that was two hundred dollars you're
paying on that, and then you also bought a TV,
and all of a sudden, Like you said, it adds up.
Now you've got one thousand dollars a month going out
the door for pay for this stuff, and when you
miss the payment that is thirty five dollars plus thirty
five dollars, it very quickly becomes very onerous to be

(04:29):
able to pay for all that stuff. Now does the
repoman come or does this get turned over to collection agencies?

Speaker 2 (04:35):
It's not secured by the asset, so it probably would
be more a collection agency thing. The other consequence is
that Phycho just recently announced that it's going to start
including buy now, pay later activity in some of its
credit scores, so it cand in your credit you know.
The bottom line is with any kind of credit is

(04:58):
it's very important to budget this or you borrow. And
one thing it does is it saves you from from
impulse purchases. You know, since by now pay later loans
have to be paid back in a short period of time,
usually like six weeks, you have to ask yourself, would
it be better if I just wait a little while

(05:18):
so I can save up and buy the it. That way,
you don't risk taking on too much debt. You don't
risk these hidden charges that we're talking about, and it
prevents you from making a purchase that you really wanted
in the moment but later realized that you didn't need,
because those are the real budget killers.

Speaker 1 (05:37):
So I'm going to slip into dad mode here and
basically say, look, separate your wants from your needs. That
sofa was probably a want, and if you really want it,
you wait till you have the money and then you
buy that sofa. In the meantime, sit on your cardboard
box for the next, you know, few weeks, few months,
and then get a really nice sofa and know that
you've paid for it and you can enjoy that rich
Corinthian leather that much more. Richard bar Carrington, thank you

(06:01):
so much for joining me today on Alabama's Morning News.
Just a little something to remember as we go into
your Labor Day sales this weekend.

Speaker 2 (06:07):
Sure, enjoy the weekend.