Media Contact: Matthew Bragulla, matthew.bragulla.004@my.csun.edu, or Javier Rojas, javier.rojas@csun.edu

As Americans become more uncertain about how they are going to pay for commodities like groceries or a trip to Disneyland, some are starting to resort to payment plans. 

According to a CNBC article, more Americans are using “Buy Now, Pay Later” loans to buy groceries and in a recent Lending Tree survey, 25% of respondents said they used a payment plan for groceries. Recently, Doordash teamed up with Klarna, an online financial services company, to allow people to utilize “Buy Now, Pay Later” financing on food deliveries. 

California State University, Northridge professor of Marketing Kristen Walker says the concept of payment plans have existed since the days of the Sears catalog, which came out in the 1880s. For instance, “layaways” were the reverse – pay now, buy later – allowing people to pay for an item over several payments.

“We started to see reframing of layaways by companies like Amazon,” Walker said. “Those organizations started thinking ‘people don’t want to buy a $250 item because it’s so expensive,’ so let’s allow them to pay the item off.”

She said a payment plan is a pricing strategy to incentivize purchases for consumers, such as what streaming services do for college students. They provide a free or reduced-price trial and eventually tack on the full price once they are out of college and have a steadier income.

 “Pricing strategies help companies train consumers,” Walker said. “They are saying ‘get used to this service.’ Then the companies hope that when you get employment, you’re going to be a user. Payment plans offer convenience to the consumer to help avoid the pain points that come with spending money.”

Consumers typically aren’t tracking the costs and won’t even feel any fees, Walker added. In fact, CNBC said most “Buy Now, Pay Later” loans don’t have interest, encouraging shoppers to lean on them as opposed to credit cards. Still, the Lending Tree survey found that even without interest, many spenders using the payment plans were making late payments, which carry hefty late fee charges. 

Walker anticipates Americans will catch on to the true amount they are spending and send complaints to agencies left to protect consumers. One of those agencies is the Consumer Financial Protection Bureau (CFPB), a federal agency whose purpose is to help consumers who have an issue with a consumer financial product or service. The CFPB recently received complaints of companies presenting a tip or donation option into more transactions and requiring consumers to make a choice before they can finish the payment, at times obscuring the “no tip” option.  

“People started complaining to the Bureau about tipping for things that don’t need tips,” Walker said. “People would tip out of habit and then realized ‘why?’” Similarly to the tips, the payment plan option is being offered for more and more products, and without much oversight, Walker explained. 

“The ability to put a payment plan into a process for consumers is easy now. It doesn’t mean consumers wanted it — it’s just another promotional activity.”

Walker said the idea of a payment plan is easy for consumers to rely on, but cautioned the CFPB will have to step in when people realize the full costs and more complaints arise. However, she added, staff cuts to federal bureaus will make these conversations harder to have. 

“It’s always going to come down to consumer rights. Was the consumer informed enough? How well are we being informed about these payment plans for Doordash deliveries? I could see down the road that these companies will have to spell out the conditions of the payment plan very clearly, making the agreement process more lengthy for the consumer.”

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