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Various approaches to credit reporting are also a reminder of other subtle policy differences among providers that should be considered before signing.
If consumers lag behind payments, some people, like Affirm and Payment, and others like Krana do the same, but can also charge a small amount of late fees and send unpaid debts to the collection agency.
Most providers are also increasingly offering long-term loans, with interest rates ranging from zero interest to 30%. Some have also engaged in amazing partnerships on large items such as exercise equipment and flights, which may risk transitioning to higher debt burdens.
This fact also has many providers that increase the risk of stacking them and have to track multiple debt accounts, said Natasha Macmillan, head of daily banking at RateHub.ca. “It almost brings false affordability to people due to zero attraction,” she said. “The real warning I want to provide is to make sure that if you do have one or more and you are looking at the total cost of all purchases right now, pay for a later plan to make sure you can actually pay for everyone.”
The impact of cheap loans on providers
The pressure of these cheap loans is starting to show for some providers. Klarna’s latest quarterly results show that consumer credit losses increased by 17%, and its overall losses doubled, raising concerns that could be the beginning of a wider industry trouble.
But the company’s credit loss rate is still only 0.54%, indicating that the vast majority of borrowers are still paying off their debts.
The bigger question is whether consumers spend more than they mean, and the money they plan to put elsewhere is now paying back those purchases.
To avoid a bunch of unexpected bills, Hawys said the key to shopping is to be ahead of time. “There’s nothing wrong with using a credit card or buying now, paying later, a car loan or mortgage or something like that. When you don’t have a plan, when you stand in the store, when you get impulsive, you get into some trouble.”
