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Earlier this week, at its Worldwide Developers Conference, Apple announced the release of a new feature called Apple Pay Later — a type of "buy now, pay later" plan. The feature lets users divide Apple Pay purchases into equal installments at zero cost.
Though there have been rumors of a cooling-off period for the explosive buy now, pay later industry, Apple's entry into the market suggests this type of short-term installment loan is here to stay. And with millions of people already using Apple Pay, more borrowers will have access to a buy now, pay later plan as the cost of goods rises and household budgets tighten.
Buy now, pay later plans can be an affordable way to borrow money, but potential users should consider the risks of taking on this type of debt.
How will Apple Pay Later work?
Apple Pay Later splits your total purchase into four equal installments repaid over six weeks, with no interest or fees, according to a news release from the company.
It's similar to plans offered by other buy now, pay later providers like PayPal, Afterpay and Klarna. The first payment is due at checkout and the remaining three payments are due every two weeks until the loan is paid in full.
For example, if your purchase is $100, you'll pay $25 at checkout, then have three remaining payments of $25, each due two weeks apart, for a total repayment period of six weeks.
By eliminating interest and fees, Apple is an automatic standout in the buy now, pay later space. Though few current providers charge interest on a pay-in-four plan, many charge late or missed payment fees.
To use Apple Pay Later, borrowers must first apply, which can be done when they check out with Apple Pay or through the Wallet app. Apple did not mention underwriting criteria in its news release. Still, most buy now, pay later providers do not require a minimum credit score, making it an option for bad-credit or no-credit applicants. Once users are approved and opt in to the payment plan, they can view and manage upcoming payments in the Wallet app.
Payments must be tied to a debit card, which may be automatically billed. Apple will send reminders before an autopayment is processed.
Apple Pay Later will be available everywhere Apple Pay is accepted online or in-app, according to the news release. The feature will launch with iOS16, which will be released later this year.
What to know about using a buy now, pay later plan
Most financial experts urge caution when it comes to buy now, pay later plans. Though it seems easy to spread a purchase out at no additional cost, taking on debt is risky, particularly for things you don't need.
One of the biggest concerns around buy now, pay later plans is overspending. Charles Ho, a certified financial planner based in Folsom, California, says the instant gratification built into these plans may lead to splurges you eventually regret.
"With cash, we're much more attuned to whether what we're buying is worth what we're paying," he says. "Whereas if we don't have that pain of paying immediately, our value radar gets thrown. We're willing to pay more for something or even buy something we otherwise wouldn't buy."
It's also easy to lose track of payments and fall behind, especially if you're managing multiple buy now, pay later loans at a time. Though Apple may not charge a fee for failed payments, your bank or credit union most likely will if you overdraw the debit card tied to your Apple Pay Later. In addition, some buy now, pay later lenders may also report late payments to the credit bureaus, which could hurt your credit score.
Finally, there are growing concerns about the lack of regulation around buy now, pay later plans. In December 2021, the Consumer Financial Protection Bureau opened an inquiry into some of the largest providers, citing data harvesting, debt accumulation and consumer protection concerns. However, the bureau has yet to release its findings.
Ho says buy now, pay later isn't always a bad option for those who want more payment flexibility and can afford the installments. However, he recommends taking a beat before agreeing to the loan.
"If you want to take advantage of zero interest and spread out the payments, I would say, sleep on the purchase for a night," he says. "If tomorrow you still really want it, and you can make the payments, then go ahead."