What: ‘Buy now, pay later’ services that allow consumers to pay for purchases in installments have driven higher spending at apparel retailers in recent years, and investors worry higher interest rates and a slower economy will spell trouble for the model.

Why is it important: Concerns are growing that the boom in short-term financing that has fueled apparel sales is saddling a growing number of vulnerable shoppers with debt they can’t pay. But the concept can still benefit brands, lenders, and consumers, with a few key changes.

Despite its recent problems, the category looks set to keep growing. Earlier this week, Apple announced it was launching a BNPL service. If deployed responsibly, buy now, pay later can benefit lenders, retailers, and consumers. But changes are needed: BNPL firms can reposition their installment plans as a way for young and low-income consumers to build credit and do a better job screening out those who are most likely to fall behind on their loans. Retailers can do more than add a button from Klarna or Affirm alongside the credit and debit card options on the checkout page; they can educate consumers about how installment payments work and be as transparent about the terms of these loans as they are about shipping.

Linking BNPL with credit agencies could allow a wider group of consumers to build credit histories, which are necessary to gain access to many benefits of the financial system.

Retailers should roll out financial literacy tools to help young shoppers navigate BNPL platforms and monitor their spending, with branded education materials and budgeting tips that can be shared via their influencer partners.

At Afterpay, customers can set up budget trackers to help manage when installments are due and set up reminders ahead of their scheduled payments.

Education can be difficult when brands see BNPL primarily to nudge consumers to spend more. The wide array of plans, each with its own schedule of payments and interest rates, can also be confusing. BNPL lenders typically don’t charge interest for smaller payments made over a few weeks, but annualized rates can be as high as 30% for big-ticket items financed over months.

A Better Approach to ‘Buy Now, Pay Later’