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Apple rolls out buy now, pay later service, with guardrails

March 28, 2023

Apple is getting into the buy now, pay later space with a few tweaks to the existing model — including no option to pay with a credit card. The company will roll out the product to some consumers this spring, and will begin reporting the loans to credit bureaus in the fall.

Here’s what you need to know.

Since the start of the pandemic, the option to “buy now, pay later” has skyrocketed in popularity, especially among young and low-income consumers who may not have ready access to traditional credit.

If you shop online for clothes or furniture, sneakers or concert tickets, you’ve seen the option at checkout to break the cost into smaller installments over time. Companies like Afterpay, Affirm, Klarna, and Paypal already offer the service, typically with late fees for missed payments and the option to use a credit card or bank account to make installment payments.

Apple’s version, which is integrated with Apple Pay and facilitated by MasterCard, will require the consumer use a debit card and a bank account to make those payments, the company said, and will not charge flat or percentage late fees. Instead, missed payments will eventually result in the consumer losing access to these kinds of loans.

Apple said its buy now, pay later product will also offer fraud and consumer protections through MasterCard’s existing pay-by-installment model, and will charge merchants fees that “are competitive to other installment products in the market,” according to Mastercard spokesperson Raul Lopez.

How does buy now, pay later work?

Branded as “interest-free loans,” buy now, pay later services require you to download an app, link a bank account or debit or credit card, and sign up to pay in weekly or monthly installments. Some companies, such as Klarna and Afterpay, do soft credit checks, which aren’t reported to credit bureaus, before approving borrowers. This is how Apple’s product will operate as well. Most users are approved in minutes. Scheduled payments are then automatically deducted from one’s bank account or charged to one’s card.

The services generally don’t charge more than a customer would have paid up front, meaning there’s technically no interest, so long as one makes the payments on time.

But if a customer pays late, they may be subject to a flat fee or a fee calculated as a percentage of the total owed. These can run as high as $34 plus interest. If a customer misses multiple payments, they may be shut out from using the service in the future, and the delinquency could hurt their credit score.

In Apple’s case, the company said there will be no late fees, either flat or as a percentage — only the possibility of missed payments reported to credit bureaus, and a loss of access to the loans. If a user wishes to defer payments, or set up a different payment plan, Apple said they can contact support. Several services allow users to defer payments in this way.

Are my purchases protected?

In the U.S., buy now, pay later services are not currently covered by the Truth in Lending Act, which regulates credit cards and other types of loans (those paid back in more than four installments).

That means you could find it more difficult to settle disputes with merchants, return items, or get your money back in cases of fraud. Companies can offer protections, but they don’t have to. Apple’s protections are offered through Mastercard.

Lauren Saunders, associate director at the National Consumer Law Center, advises borrowers to avoid linking a credit card to buy now, pay later apps whenever possible. If you do, you lose the protections you get from using the credit card while also opening yourself up to owing interest to the card company.

“Use the credit card directly and get those protections,” she said. “Otherwise, it’s the worst of both worlds.”

Apple’s decision not to permit consumers to link a credit card to its buy now, pay later product means the consumer avoids stacking debt in this way.

Orange County Register

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Apple rolls out buy now, pay later service, with guardrails

How does buy now, pay later work?

Are my purchases protected?

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