‘Buy Now, Pay Later’ Has Hit An All-Time High Among Shoppers This Holiday Season
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Josephine Nesbit
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Nicholas Morine
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More U.S. consumers are using “buy now, pay later” services for holiday shopping. However, advocacy groups and banking regulators say lower-income retail shoppers may struggle to pay their bills in the new year.
Buy now, pay later (BNPL) is a short-term installment loan that lets you pay for your purchase in multiple equal payments. BNPL lets you purchase something immediately, often with little or no initial payment.
According to Adobe Analytics, BNPL contributed to $10.1 billion of online spending since the start of November, up 17% from last year. Financial Times noted that these payment methods have gained popularity in the U.S. as household savings fall and consumer sentiment sinks to a six-month low. BNPL has also helped consumers deal with inflated prices.
“We are in an environment where things cost more, so it’s somewhat predictable that consumers can get into situations that can quickly spiral into unaffordable debt burdens,” Delicia Reynolds Hand, director of financial fairness advocacy at Consumer Reports, said to Financial Times.
BNPL Increases Total Spend, But May Be Dangerous
A 2023 academic study showed that consumers spent 20% more with BNPL than they would have done using another payment method, Financial Times pointed out. Reynolds Hand also said that many BNPL companies are moving from zero-interest payment models to interest-bearing installment loans, increasing the cost for consumers.
The Office of the Comptroller of the Currency, a top U.S. banking regulator, recently warned banks to watch out for BNPL financing, saying the service is a danger to shoppers, Fortune reported.
Michael Hsu, the acting comptroller of the currency, said that if consumers aren’t careful, they can become overextended, leading to loan delinquencies. Hsu also said even if loans don’t have financial charges, they can impose overdrafts or late fees when they’re linked to credit or debit cards.
“That’s where the risks are,” Hsu said, as reported by Fortune.
According to the Consumer Financial Protection Bureau, late fees are often around $7 per missed payment on an average loan size of $135.
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