Be wary of services that pay in three or five installments

Services or applications like Sezzle, Afterpay, Klarna or Affirm allow you to pay for your makeup or your pair of jeans in several installments. Beware of Terms of Use…

These financial services technology companies, or fintechs, define themselves as payment instruments, not lenders. The resulting legal ambiguity opens the door wide to credit situations that disadvantage consumers.

The latter, however, prefer these services, as evidenced by the just-published Option Consumers study. They love their convenience: you shop online or with your phone, you go to the virtual checkout, where you are offered several payment methods, including these services.

You pay the bill over several weeks with no fees or interest on three, four, five or nine payments. You decide where to withdraw the funds (credit or debit card). Easy as pie.

When things go bad

If the transaction goes smoothly then everything is fine. Things get complicated when promises are not kept.

For example, if you don’t receive your purchase or you want to return it, you must come to an agreement with the seller. What if their service is weak, they’re in China or Bangladesh, or they tell you to agree to an illegal messaging service?

“You don’t benefit from a chargeback on a credit card, because even if the money is withdrawn from your card, the transaction is done with the fintech,” explains M^e Clarisse N’Kaa is a lawyer and research writer at Option Consumers.

To make matters worse, consumers often complain that the quality of customer service from these fintechs is poor.

On the other hand, if the funds are not available when the payment is made, it will cost you a lot. If you buy $35 worth of mascara and you get charged a $7.50 fee to defer payment, your makeup will cost you an arm and a leg.

Worse: In the event of a non-funding (or NSF), your financial institution will charge you a $35 fee. And fintech is an equal amount. Paying a $70 fee for $35 worth of mascara…

Some fintech companies also charge a $15 fee to reactivate an account. Additionally, a late or missed payment can affect your credit report. Only Affirm clearly spells this out in its terms of use.

The problem is that no one reads them. However, the consequences are as unfortunate as dealing with a collection agency for a pair of jeans or headphones. If this is your case, your credit report is probably damaged.

advice

• Choice Consommaturs consider these financial technology companies to be at risk of over-indebtedness: you multiply purchases and you have a series of payments in the coming weeks. It is often difficult to navigate.

• If you lose your job and have all these payments, it can seriously complicate your life.

• Better to pay cash or use your credit card and bring the balance to zero when due. This way you stay in control.