Although U.S. consumers have embraced "buy now, pay later" loans in part because of marketing claims that they offer zero-percent financing, shoppers should be on their guard. Some BNPL products charge exorbitant interest rates, along with heavy fees when you miss a payment, according to Consumer Reports.

The loans allow consumers to split payments into smaller installments and spread them out over time, helping them make purchases they might not otherwise be able to afford. But the nonprofit advocacy organization urges consumers to read the fine print, while the group is also calling on federal regulators to adopt stronger policy measures to mitigate consumer risks posed by evolving industry practices.

The most common BNPL loans are "pay in four" products, according to the Consumer Financial Protection Bureau. These short-term credit plans divide the total amount of a purchase, usually ranging from $50 to $1,000, into four equal payments. Consumers pay the first 25% at the point of sale and the remaining three installments over the next six weeks — with no interest or fees. 

Apple in March became the latest retailer to hop on the bandwagon by launching Apple Pay Later, a new service in its digital wallet that lets customers break up payments for purchases into four installments over six weeks. Just over half of Americans say they expect to apply for a BNPL loan at least once in the next six months, a recent Lending Tree study found. 

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The industry's meteoric growth also has led to new products by companies like Affirm, Klarna, PayPal and Sezzle. But these larger loans can have longer terms and, unlike "pay-in-four" products, may carry interest rates as high as 36.99%, while shoppers can also find themselves hit with late fees of $30 or more for a single missed payment, according to Consumer Reports. Of consumers who got a BNPL loan in 2021, 11% had one that charged interest, according to a survey from the Financial Health Network.

High interest rates make longer-term buy now, pay later plans more expensive than the average credit card. Take a $2,500 loan with a longer-term BNPL and an APR of 36.99%. Paid over 24 months, a borrower would end up paying $1,074 in interest charges, according to Consumer Reports. By comparison, a $2,500 purchase made with a credit card with a 24% APR that is paid after two years would cost $672 in interest.

Unlike credit cards, meanwhile, buy now, pay later loans lack basic consumer protections. That's because, despite these products' widespread use, they are largely unregulated. 

Despite increased scrutiny by the CFPB, which has indicated that regulations are coming for the products, a consumer's only real protection is to be aware of the financial risks. Along with potentially getting hit by stiff interest charges, those include the risk of overspending, incurring heft penalty fees, and challenges making returns or disputing charges.

"Buy now, pay later loans fall into a legal gray area that leaves consumers vulnerable to getting tripped up by unfair practices without the protections they get with other forms of credit," Jennifer Chien, senior policy counsel for financial fairness at Consumer Reports, said in a statement. "The CFPB should establish new rules for this largely unregulated market so consumers are treated fairly and aren't surprised by interest charges and other unexpected costs when they take out a buy now, pay later loan."  

In the meantime, here are seven tips from Consumer Reports on avoiding the potential pitfalls of BNPLs.

• Ask yourself if you really need to make a purchase. The convenience of BNPLs makes it easy to justify spending money. But 57% of BNPL users report buyer's remorse because what they purchased "was too expensive," according to Bankrate.
• Pay for purchases in full whenever possible. 
• Look before you leap. CR recommends shopping around to compare options — and, again, read the fine print. 
• If you can't afford a small purchase and don't have a credit card, consider a traditional pay-in-four loan if you are certain you can repay it in six weeks. Be sure to set up autopay to avoid missing a payment.
• If you can't pay all at once for a large purchase, charge the item on your credit card and pay the balance off as quickly as possible. By using a credit card, you will have consumer protections that aren't provided by BNPL loans, and may earn reward points.
• If you need to make a larger purchase but don't have a credit card, talk to your bank or credit union. Many offer smaller personal loans with reasonable terms.
• If you need another way to finance a purchase, consider a monthly loan from a BNPL lender, particularly if you can get a low promotional rate. To keep the costs as low as possible, be sure to make payments on time to avoid late fees.