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New ways to pay: Instalment payments with a twist

New kinds of instalment plans are offering options to shoppers who may remember layaway as something their parents or grandparents used.
The payment businesses, many of them startups, are working with companies like Urban Outfitters or Expedia to give shoppers an alternative to traditional credit cards. While layaway plans were getting used again during the Great Recession, their popularity has faded as shoppers don't want to wait for their purchases.
The payment firms say they appeal to younger shoppers. "For them, it's more like a budgeting mechanism," says Nick Molnar, co-founder and CEO of Afterpay. "It means it's more manageable to them."
Afterpay, which launched in the US in May, hopes to replicate its adoption in Australia, where it says it processes more than 25 per cent of all online fashion and beauty transactions. Another company, Affirm, claims 1.5 million active US users. Even American Express is jumping into the game.
Shoppers who use the new payment options are likely to spend more compared to when they use traditional forms of payment, says Tyler Higgins of the consulting firm AArete. The installment plans may also help stores prevent abandoned carts by offering other ways to pay. And many of the payment firms take on any fraud risk, says Forrester Research's Brendan Miller.
But experts caution the new plans could also be encouraging customers to stretch for purchases they can't really afford. 
How it works
Many of the new plans are basically mini-loans shoppers can take out for specific purchases when checking out at stores and online sites that participate. The payment firms are promoting themselves on the front pages of the retail and travel Websites they're working with, and people can decide when they're ready to buy something if they want to try it out.
What can I buy?
Retailers like Casper, Wayfair, and Expedia work with Affirm. Afterpay works with names like Urban Outfitters and the online site Revolve.
Meanwhile, a company named Uplift has teamed up with travel partners such as American Airlines Vacations and Southwest Vacations and with Universal Orlando resorts.
American Express' Pay it Plan option, available on its mobile app, allows customers to pay in installments for purchases of $100 or more.
What about credit checks?
The new payment firms don't do traditional credit checks but use several pieces of data. Both Uplift and Affirm asks for the last four digits of customers' Social Security numbers. Afterpay doesn't ask for the social security number but looks at how long people have lived at their addresses and their buying histories. The "loans" are approved or rejected in seconds or minutes.
Fees?
They vary. Affirm says for many fashion purchases, shoppers pay no interest. For others, it could be 10 per cent to 30 per cent based on customers' credit. It doesn't charge late fees, service fees or prepayment fees. Shoppers can choose a payment schedule over a period of months.
Afterpay requires customers to pay every other week in four payments. A missed payment draws an $8 fee every time, while late fees cap at 25 per cent of the price. Afterpay also charges from 4.5 per cent to six per cent fees to the retailers, but doesn't charge interest to shoppers.
Uplift sets interest based on how it judges a person's credit worthiness. A $1,500 trip broken down into 12 equal installments would average about $10 in extra interest per month, according to founder and CEO Brian Barth. There are no late fees.
At AmEx, customers pay a fixed monthly fee based on their credit card's annual percentage rate, but no interest charge.
What to watch for
Know the upfront fees. Stick to a budget. And keep in mind that these companies reserve the right to report bad behavior to credit bureaus.
"You can't overextend yourself," said Miller.