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IPFS News Link • Economy - Economics USA

Many Are Addicted to "Buy Now, Pay Later" Plans, It's a Big Trap

•, By Mish

The office of the Comptroller of the Currency defines BNPL as "loans that are payable in four or fewer installments and carry no finance charges." They are generally offered to online shoppers at checkout.

The New York Fed discusses How and Why Do Consumers Use "Buy Now, Pay Later"?

We differentiate between two types of respondents: 1) the financially fragile, whom we define as having a credit score below 620, having been declined for a credit application in the past year, or having fallen thirty or more days delinquent on a loan in the past year, and 2) all other respondents, whom we refer to as financially stable.

We find that the financially fragile are disproportionately likely to use BNPL at higher frequencies and appear to have embraced BNPL as a regular payment option. Among financially fragile BNPL users, about 60 percent have used the product five or more times in the past year, which translates to about 18 percent of all survey respondents deemed financially fragile (which includes those who have not used BNPL in the last year). This implies that financially fragile users are almost three times as likely as financially stable users to use BNPL five or more times and suggests that high-frequency use may grow if the product continues to be adopted by financially fragile households. 

While about 68 percent of financially stable BNPL users have taken advantage of the product at least twice in the past year, just 23 percent and 14 percent have used it five or more times and ten or more times, respectively. This reveals that use by the financially stable tends to drop off substantially after a few instances, but that there is a small group of financially stable individuals who use BNPL frequently.