On March 28^th, Apple announced Apple Pay Later, its new Buy Now, Pay Later offering.

With the unveiling, Apple joins a financial trend that has skyrocketed since the pandemic. In a 2021 survey by C+R Research, 60% of participants indicated they’d turned to a Buy Now, Pay Later service at least once while shopping online. 35% reported that they paid for an online purchase in installments ‘most of the time.’

“I think this is more aspirational, kind of the old keeping up with the Jones [thing],” said Kathleen Blum, C+R Research’s vice president of shopper insights. “We all have that, where we want what we want now, and that’s what buy now, pay later takes advantage of.”

Of course, the impulse to buy something we can’t afford is nothing new. Before Buy Now, Pay Later services became popular, there were other installment payment options, such as payday loans—short-term, astronomically high-interest loans that trap low-income borrowers into debt.

Payday loans are how Anthony Smith, 62, a Formica Company employee from Cincinnati, Ohio, got into financial trouble. After experiencing multiple layoffs, Smith turned to payday loans to finance everything from cars to credit cards to clothes. Soon, the debt had severely damaged his credit score, and he was unable to secure a mortgage.

“That’s when you realize all those things that you didn’t take care of [will] get to affect you,” Smith said.

Unlike payday loans or credit cards, Buy Now, Pay Later services advertise themselves as easy, interest-free ways to borrow money. But like most things in life, looks can be deceiving. Millennials, their main users, are already likely to be burdened by high debt and low incomes. Buy Now, Pay Later services operate largely free from government oversight and aren’t included in traditional financial literacy programs. Failing to pay back these services on time can quickly drive millennials deeper into debt and threaten their long-term financial health.

A March 2023 report by the Consumer Financial Protection Bureau found that consumers below the age of 35, with annual incomes between $20,000-$50,000 and subprime credit scores between 580 and 669, were most likely to utilize Buy Now, Pay Later services.  

In addition to operating with lower incomes, millennials are more likely to carry higher amounts of debt than other age groups. According to the Education Data Initiative, 15 million millennials hold student loan debt, owing an average of $33,173 per borrower.

Along with student loan debt, inflationary costs and credit card debt act as interlocked stressors in millennial financial life. Todd Moore, director of education at Trinity Debt Management, says he’s increasingly seen millennials turn to credit cards as supplemental sources of income as the cost of living has outpaced earnings. According to the Federal Reserve of New York, the delinquency rate for credit card users in their 20s and 30s is higher today than it was pre-pandemic.

As inflation and interest rates have skyrocketed, Buy Now, Pay Later services have emerged as interest-free alternatives for millennials to finance everyday staples, in addition to higher ticket items. In March 2023, the U.S. Department of Agriculture found that the cost of groceries rose by 10.2% from February 2022 to February 2023. A recent Adobe Analytics survey showed that in the first two months of 2023, online grocery spending using a Buy Now, Pay Later service grew by 40%. People have also turned to the services to gas up their cars. Chevron customers have had the option to finance gas purchases through Klarna—one of the most popular Buy Now, Pay Later services—since 2021.

To many financial educators and experts, the risks of Buy Now, Pay Later services lie in a lack of understanding and oversight and the threat of financial overextension. According to Kim Cole, the chairwoman of The New Jersey Coalition for Financial Education, millennial consumers will often turn to Buy Now, Pay Later services without understanding the fine print.

“The bottom line is the buy now, pay later, these places… they’re not included in the financial education being taught,” Cole said. “It’s focused on credit cards and bank accounts, which is fine, but [young people] don’t…they don’t know this product until it’s too late.”

Buy Now, Pay Later services also aren’t regulated by the 1968 Truth in Lending Act, which protects consumers against predatory credit card practices. Nadine Charbier, senior policy counsel working on federal policy at the Center for Responsible Lending, says the lack of supervision allows services to approve customers to Buy Now, Pay Later without ensuring that they have the financial ability to make payments on time, potentially trapping lower-income consumers in cycles of debt that are hard to break free from.  

While Buy Now, Pay Later services don’t charge interest, most require customers to put down a credit or debit card for autopay when they opt into a Buy Now, Pay Later loan, with no limits on how many loans from different services one can sign up for. This can lead to multiple payments being withdrawn per month. If the customer doesn’t have the money in their bank account at the time of payment, they’re often charged late fees on top of the owed installment or installments. According to Morning Consult, Buy Now, Pay Later users are “significantly” more likely to overdraft their bank accounts than non-users.

Smith, who after working with Trinity Debt Management is now debt-free, advised young consumers to learn from his mistakes.

“Don’t ever be afraid to say no [to buying something you want],” Smith said. “…they didn’t just make one. They will always be there when the time is right.”