The Consumer Financial Protection Bureau (www.consumerfinance.gov) recently conducted a study of Buy Now, Pay Later (BNPL) users. While many of the respondents did not encounter significant financial stress, BNPL users were much more likely to:
- be highly indebted; have lower credit scores.
- have high credit card utilization rates and revolve the balance on their credit cards.
- have delinquencies with traditional credit products.
- use high-interest financial services such as payday, pawn, and overdraft compared to non-BNPL borrowers.
BNPL borrowers generally have access to traditional forms of credit, using credit and retail cards, personal loans, student debt, and auto loans. The report estimates that a majority of BNPL borrowers would encounter annual credit card interest rates between 19 and 23 percent.
BNPL users tend to be younger. About 22 percent of consumers under age 35 borrowed using BNPL, while approximately 10 percent of those over the age of 65 used the service. Renters (22 percent) were more likely to be a BNPL user compared to homeowners (15 percent).
BNPL borrowing is viewed as less costly than other credit sources, such as credit cards or payday loans. However, consumers need to be aware of the potential concerns. While advertised as “no interest,” late or missed payments can trigger high fees, which can result in paying more than the original cost. BNPL will not improve your credit score, but it could damage it due to missed or late payments. BNPL can be a doorway to financial difficulties, especially if you use it for more than one purchase at a time.
For additional information on buy now, pay later, click here.
- Have students talk to someone who has used BNPL to learn about the person’s experience with this credit source.
- Have students create an audio file or podcast with a summary of the benefits and drawbacks of BNPL borrowing.
- What features of BNPL services are most attractive to consumers?
- What advice would you give a person who is considering using BNPL?