(WXYZ) – Cyber thieves have targeted every banking account, from bank accounts to credit cards. Now, banks are turning to a unique solution to combat financial exploitation—a new, two-sided, buy now, pay later loan.
Customer Abbey Wilson said she is grateful she signed up for the new type of loan that is becoming popular.
“We have the technology at our fingertips and using that was a lot more convenient than just writing out checks or whatever because you know it gets from here to there right away,” she said.
Wall Street has been testing out “buy now, pay later” loans that work like this: a credit card company offers to pay off one’s purchases over time, by making small payments online.
While the loans seem great for customers, industry experts warn consumers that despite the convenience, there are a lot of risks associated with these loans.
Heather Pegg is the co-owner of MyHLobit, a Brighton-based site that lends money. She said these new loans differ from payday loans in their form and purpose.
“The biggest difference is they’re not just those quick and dirty, high-interest loans,” Pegg said. “These are really credit options where you’re paying interest for a loan for a fixed amount of time.”
Financial experts have the following concerns:
The interest rates are usually higher than the existing interest rates for standard credit cards.
If you don’t pay the loans back, you could end up in a real trouble.
“Just be sure to be very cautious before borrowing money on this product and making a decision,” said Rich Mellons, VP of Urban Financial Solutions.
Mellons said at a minimum, you should never become an installment borrower with a lender that is not insured by the Federal Deposit Insurance Corporation.
“You want to go with someone who’s insured by the FDIC,” Mellons said. “If you don’t have to worry about the risk of the FDIC or a bank going bankrupt, you don’t want to go with someone who isn’t insured by the FDIC.”
You could end up with a lower amount of money to pay back, over time.
“You are agreeing to pay back an amount that is a lower amount than you originally borrowed,” Mellons said. “If you go into this with your mind set and even if it gets paid back or comes close to coming back to that original amount, then there will be a negative balance that you have to pay back in the long term.”
You could also not get a refund of your money if you don’t pay it back, because it was paid off from your credit card.
Here are some other risks:
You could become homeless or unable to afford other necessities, like medical bills or education.
Only a fraction of credit cards are protected, and at any time, you can lose your account or the card.
Your credit rating can be damaged, which can affect your ability to get approved for a new credit card or loan.
You could become emotionally disturbed if you run out of money, and then have to start charging money on your credit card.
Do you think “buy now, pay later” loans will be a hit with consumers?
“This is a growing trend in our industry,” Brad Cohan, the CEO of myHLobit said. “And we just felt like this was another way to engage with customers.”
Whatever happens, experts say you don’t want to be stuck on these loans that have higher interest rates, and especially the interest could be quite expensive.
You should check with your credit card companies for a free, credit card monitoring service to see if you have ever fallen victim to cyber theft and if so, how much it cost you.