More Consumers Now Using Buy Now Pay Later for Everyday Expenses

Buy Now, Pay Later (BNPL) loans have become popular payment methods for big-ticket items, but consumers have been using them recently for everyday purchases, likely due to increased prices for goods related to inflation and supply chain issues. Consumer advocates and economists are concerned about Americans accumulating too much debt, since BNPL loans are not tracked by the Federal Reserve like credit cards and auto loans.

“There’s no question there’s a big hole in our understanding of people’s financial situations, if you don’t include Buy Now, Pay Later,” said Matt Schulz, chief credit analyst for LendingTree, according to CNN. “And that’s a problem for credit scoring companies, credit bureaus, and for lenders.”

BNPL transactions are estimated at $100 billion annually, and analysts predict that could increase to between $1 trillion and $4 trillion in the next few years. Providers make money by charging merchants a small percentage of the transaction price, which has proven to be worth it for most retailers, as BNPL offerings boosted sales by 30 to 50 percent.

However, since BNPL loans are not regulated like other credit products, there are varying terms and conditions among different companies. Consumers can easily get into debt as the installment process makes it seem like they are paying little for goods. “The opportunity to stack your debt by using multiple Buy Now, Pay Later loans through multiple service providers is one of the biggest risks I see,” said Terri Bradford, a research specialist in payment systems for the Kansas City Federal Reserve.

Alternatively, BNPL providers say that their products are a safer and more sustainable payment option than traditional credit. Many consumers are now using BNPL loans to help stick to a monthly budget, especially for consumers who do not have a steady paycheck.

Most BNPL users are younger, typically Millennials or Gen Zers. Marshall Lux, a Harvard Kennedy School fellow who recently authored a study on BNPL, noted that Millennials and Gen Zers that use BNPL often have subprime credit scores, and are using the services on many everyday goods.

“People are buying more than they should, and they admit it,” Lux stated. “Whether it’s aggressive marketing, whether it’s impulse buying, whether it’s a belief that, ‘I’ll have more tomorrow,’ they’re using lots of these [services].”