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WalletPrep worksheet · Debt

How does buy now, pay later work?

Name ____________________ Date __________

Key ideas

  1. Pay-in-4 means four payments, two weeks apart. You pay a quarter at checkout and the rest over six weeks. Many plans charge no interest if paid on time.
  2. Stacked plans add up fast. In the example, three small plans turn into $200 due every two weeks and $600 still owed after checkout.
  3. Credit reporting varies by provider. Some report nothing to the credit bureaus that track borrowing, some only missed payments, some every loan. Check first.

Vocabulary

Collections
When an unpaid debt is handed or sold to a debt collector after missed payments. It can hurt your credit score.
Credit bureau
A company that collects your credit history and sells reports to lenders. The three nationwide bureaus are Equifax, Experian and TransUnion.
Hard inquiry
A credit check made when you apply for credit, like a card, loan or mortgage. It can lower your score a few points for a while.
Credit report
A record of your credit accounts, payments, balances and some public records, kept by each of the three credit bureaus.
Credit score
A 3-digit number, usually from 300 to 850, that predicts how likely you are to repay debt on time. Lenders use it to set rates.

Work it out

Jordan, 26, uses pay in 4 three times in a month: $240 shoes, $400 headphones and $160 concert tickets. Each plan takes 25% now, then three payments every two weeks.

  1. Shoes payment ($240 ÷ 4)
  2. Headphones payment ($400 ÷ 4)
  3. Tickets payment ($160 ÷ 4)
  4. Due every two weeks
  5. Total of purchases
  6. Paid at checkout
  7. Still owed
  8. Payments left on each plan

Check yourself

  1. A $320 purchase uses a pay-in-4 plan. How much is each payment?

    • A. $64
    • B. $80
    • C. $106
    • D. $160

  2. Which is true about buy now, pay later and credit reports?

    • A. Every provider reports every payment
    • B. No provider ever reports anything
    • C. Reporting varies by provider, so check the terms

  3. When is buy now, pay later the riskiest choice?

    • A. For a planned purchase you could pay in full
    • B. When you already have other plans open and a tight budget
    • C. When the plan has no fees and you set reminders
    • D. For a one-time purchase with autopay from a funded account

Your turn

Open every buy now, pay later app you use and list each plan, its next payment and its due date. Add up what is due in the next two weeks and check that your account can cover it.

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Answer key

How does buy now, pay later work?

Work it out

  1. Shoes payment ($240 ÷ 4)$60
  2. Headphones payment ($400 ÷ 4)$100
  3. Tickets payment ($160 ÷ 4)$40
  4. Due every two weeks= $200
  5. Total of purchases$800
  6. Paid at checkout− $200
  7. Still owed= $600
  8. Payments left on each plan3
  1. Each plan splits its price into 4 equal payments: $60, $100 and $40. Together that is $60 + $100 + $40 = $200 every two weeks.
  2. Jordan paid $200 at checkout, so $800 − $200 = $600 is still owed over the next six weeks.
  3. If one payment fails, Jordan may owe a late fee, and the bank may charge its own fee too. Fees vary by provider and state.

Check yourself

  1. B. $80 Pay in 4 splits the price into four equal parts. $320 ÷ 4 = $80, with the first $80 due at checkout.
  2. C. Reporting varies by provider, so check the terms Practices differ. Some report nothing, some report only late payments, and some report every loan.
  3. B. When you already have other plans open and a tight budget Stacked plans on a tight budget make missed payments, late fees and bank fees much more likely.