‘Buy Now, Pay Later’ vs. Inflation: Surprising Number of Users Rely on BNPL for Necessities

Beautiful smiling young Asian woman grocery shopping online with mobile app device on smartphone and making online payment with her credit card, with a box of colourful and fresh organic groceries on the kitchen counter at home stock photo
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Rapid inflation is leading consumers to take steps they may not normally rely on to make ends meet. One such tactic is the use of Buy Now, Pay Later (BNPL) services for items they need. Nearly 60% of consumers said inflation is driving them to use BNPL products, according to a new survey from Credit Karma. Additionally, 50% of survey respondents said their BNPL usage has increased in the past six months.

The survey revealed that 13% of BNPL users are relying on the service to pay for items from the supermarket, while 18% are using it at warehouse stores, and 17% are using it at discount stores. Usage in these areas would indicate a need for BNPL to pay for necessities like food and household items.

However, people are more likely to use BNPL apps at department stores (40%), specialty stores (32%) and through e-commerce retailers (31%), the Credit Karma survey said.

As indicative of challenging financial times, 20% of consumers are using their credit cards to cover their BNPL payments. “That’s troubling when you consider 40% of BNPL users currently have an outstanding balance of $665, on average,” said Colleen McCreary, Credit Karma Chief People Officer and Consumer Financial Advocate.

However, there is a silver lining, McCreary pointed out. “Another 34% of respondents say they use BNPL to avoid credit card debt, and less than 20% of BNPL users have missed a payment.” That’s down from 33% reported in September,” McCreary said.

This is especially good news considering that BNPL payments are now being reported to the three major credit bureaus (Experian, TransUnion, and Equifax). Experian and TransUnion are keeping BNPL usage records separate from other loans and credit metrics, while Equifax is slowly integrating the data, GOBankingRates previously reported.

Make Your Money Work for You

“I’m a strong proponent of credit bureaus and BNPL providers working together to implement uniform and consistent tracking of BNPL transactions. This benefits consumers who are able to borrow responsibly by giving them credit for their good borrowing behavior,” McCreary told GOBankingRates in an email interview this week.

As the credit bureaus roll out their programs to reflect on-time payments and responsible behavior using BNPL apps, however, consumers should use caution. “Many Buy Now, Pay Later providers do not report positive borrowing behavior to the credit bureaus, so you won’t get credit for any on time payments made. However, some providers do report missed payments, which can have a negative impact on your score. Missed payments have the biggest impact on your credit score, and our data shows that a majority of consumers who missed BNPL payments saw a decrease in their credit score,” McCreary said.

Credit Card or BNPL? Which Should You Use

BNPL offers several advantages over credit cards, including convenience and availability. “BNPL services are a convenient option, as they don’t typically require separate applications or processing times since the payment options are built into the checkout experience. What’s more, most offers are interest-free or low interest so if you can pay your balance on time, BNPL can be a great option,” McCreary said. Additionally, BNPL services don’t require a hard credit pull for approval, which means the act of applying for BNPL won’t hurt your credit score.

But, if your credit is good, you could be leaving money on the table using BNPL instead of a high-quality rewards credit card that delivers cashback and other perks, McCreary pointed out.

Make Your Money Work for You

Expert Tips To Manage BNPL Apps Responsibly

Even if applying for BNPL won’t hurt your credit, you should still pay close attention to the fine print and loan terms, just as you would if you were applying for a credit card.

“Understand what you’re signing up for,” McCreary advised. “You should have a clear understanding of the terms, including what the interest rate is, what the monthly payment is, and what the penalties are if you miss a payment. Terms and conditions vary across BNPL providers.”

Also, make sure to track your purchases so you know that you can make all your BNPL payments and won’t get in over your head. Managing multiple loans, with different payment terms and due dates, can be complicated. Sign up for direct debit so you don’t risk missing a payment, but keep track of funds in your bank account to be sure you have the money to cover the payment.

“If you agree to take out a point-of-sale loan, you’re borrowing money that you will one day have to pay back,” McCreary warned. “Ask yourself if you can afford to take on this debt, and if you’ll be able to stick to the payment plan until it’s fully paid off.”

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