How to return gifts purchased using buy now, pay later plans

Shoppers who use "buy now, pay later" to help finance gifts this holiday season may soon encounter an unwelcome surprise: Returns can be more challenging than when buying from the store with cash or a credit card.

Returns and disputes are a common concern among BNPL users, according to a September 2022 report from the Consumer Financial Protection Bureau, and dispute resolution is the top buy now, pay later-related complaint in the CFPB's Consumer Complaint Database.

But making a seamless return with BNPL isn't impossible if you know the process ahead of time. Whether it's a gift you bought or received, you'll want to deal with the retailer when making the return and follow up with the buy now, pay later provider, if necessary.

What to know about buy now, pay later returns

When you use a buy now, pay later provider like Afterpay, Affirm or Klarna, you're opting to divide your total purchase into smaller, often interest-free installments while the provider pays in full on your behalf.

That means when you make a return, the refund goes to the BNPL provider. It's up to the provider to apply the refund to your account, and there's usually a lag.

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Because BNPL loans have quick turnarounds — payments are due every two weeks on standard pay-in-four loans — you can get stuck making payments on a gift that has been returned.

The industry also remains largely unregulated. If a package goes missing or arrives damaged, consumers have fewer protections compared with other financing products.

"Returns can be a challenge with buy now, pay later because there are specific dispute provisions that apply to credit cards that may not exist in the BNPL space depending on the lender," said Laura Udis, senior program manager of small dollar, marketplace and installment lending at the CFPB.

Udis points out that some providers voluntarily offer protections. PayPal and Klarna, for example, have formal protection policies, which may increase the likelihood of a refund.

According to Klarna, its buyer protection policy was implemented to reassure shoppers they can safely shop with the app.

"If goods are not delivered or if there is something wrong with them, we have a clear process to help shoppers resolve any issue and ensure that no customer is unjustifiably liable to pay for a purchase," Kristina Elkhazin, head of Klarna North America, said in an email.

However, returns are ultimately subject to the store's policy, and shoppers should prioritize getting returns approved with the store before contacting the buy now, pay later provider.

Steps to making a buy now, pay later return

If you need to return a holiday gift that was purchased with buy now, pay later, follow these steps.

— Check the BNPL provider's return process: Most providers maintain a webpage that explains the process, which can vary by provider. Learn what to expect with a refund and timeline.

— Return the gift to the store: Providers will direct you to the retailer first, so check the store's return policy. If possible, return online orders in person so you don't risk the item getting lost in the mail. Bring relevant documents like a receipt or email confirmation. If you don't have a receipt, you may be able to make an exchange or receive store credit, depending on the store's policy.

— Keep records: Retain copies of all transactions, including returns, exchanges or issued store credit. If you mailed a return, get a tracking number. Keep a log of communications with the store.

— Follow up with the BNPL provider: Some providers may ask you to report a return on their website or app, while others require no action on your end.

— Keep making payments: Once you've returned the gift, keep paying off your loan. Refunds can take a while, and if you miss a payment, you may be charged a late fee or other penalty. Some providers, like Afterpay, may allow you to defer a payment once you've made a return.

— Potentially file a dispute: If your purchase has not been refunded in a timely manner — from a few days to a few weeks, depending on the BNPL provider — contact the provider's customer service department for more information. If the store isn't accepting your return, consider filing a dispute with the provider. This may mean logging in to your account and filling out an online form.

This article was provided to The Associated Press by the personal finance website NerdWallet. Jackie Veling is a writer at NerdWallet.