The new protections, combined with an ambient fear of debt in a country still reeling from a loan-induced economic catastrophe, worked. Young Americans began opening credit cards less frequently; when they did, they missed fewer payments and maintained lower balances than previous generations had. In 2012, only 41 percent of people in their 20s had a credit card, as opposed to more than 73 percent of American households overall. The use of debit cards soared. The marks weren’t so easy anymore.

By 2019, that progress had eroded. The number of 20‑somethings with credit cards ticked above 50 percent, and more of them began falling behind on payments. The cost of living was rising, the Great Recession wasn’t so close in the rearview mirror, and people needed and wanted to buy things, even if they didn’t necessarily want credit cards. It was the perfect time for a shiny new gambit from the finance world, and one emerged to meet the moment: point-of-sale lending start-ups like Klarna, Afterpay, and Affirm, or, as many of them prefer to be known, “buy now, pay later” services.

You’ve probably seen these businesses infiltrate many of the places you shop online. They’re embedded in the checkout processes at Walmart, H&M, Sephora, Dyson. Their promises are enticing: Split a $200 pair of Adidas into four automatic, interest-free payments of $50, with only a cursory credit check required. Try a pricey new moisturizer and return it if you don’t like it before the money has even left your bank account. Pelotons don’t cost two grand; they cost 60 interest-free bucks a month for a few years. The checkout lenders market themselves on simplicity, transparency, and low cost—credit for people who are too smart to get tangled up with credit cards. But when you find yourself being flattered and asked for your debit-card number in the same breath, it’s time once again to ponder one of life’s most important questions: What’s the catch?

When Erin Lowry first encountered the chance to take out a loan for a couple hundred dollars from Affirm, she was buying Cole Haan shoes. This was a few years ago, before Affirm and similar services had been adopted by tens of thousands of American internet retailers. “My gut reaction was like, Oh, this is a terrible idea,” Lowry, the author of the Broke Millennial financial-advice books, told me. Her standard counsel for these situations probably won’t shock you: Deals that sound too good to be true probably are. But could point-of-sale lenders be the exception to the rule?

These companies put forth a range of financing alternatives, but their most ubiquitous breaks down purchases into two to four installments, paid automatically over a few weeks or months, usually with your debit card. The fine print varies, but the plans typically charge no interest, and the penalty for missing a payment ranges from nothing to nominal—seven or eight bucks. (Credit cards are also accepted, but that, of course, introduces the possibility of paying interest.) Upon checkout, you give the store’s lending partner your name, address, phone number, and birth date, and are approved or rejected based on an algorithm in lieu of a full credit check. None of the major lenders discloses the criteria included in their algorithms, but the time of day and the size of your purchase are often cited as examples of what might be considered—bad news if you want to spend a lot of money at three in the morning.



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