More consumers are beginning to use buy now, pay later (BNPL) payment methods, but some shoppers are struggling to pay it back, according to a new survey from Accrue Savings.
BNPL is quickly gaining momentum as an alternate payment option, with its global transaction value having reached $120 billion in 2021, according to a new report from GlobalData. And the sector is likely to continue growing — GlobalData projected the BNPL market could reach $576 billion by 2026.
BNPL providers — such as Affirm, Klarna and Paypal — partner with retailers to allow shoppers the ability to split the cost of their online purchases into multiple installments at checkout. These interest-free payments are generally due a few weeks after the time of purchase. However, missed payments can result in late fees and other penalties.
In order to avoid these fees, some Americans, especially younger generations, are using credit cards to make their payments, according to Accrue’s survey. About 44% of those who have used BNPL have missed a payment.
About 38% of Gen Z borrowers have used a credit card to make their BNPL payment, according to the survey. The same is true for 44% of Millennials, 36% of Gen Xers and 21% of Baby Boomers.
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Millennials, Gen Z struggle with financial health
Amid today’s economic struggles, 50% of Millennials, and 43% of Gen Z stated that they are overwhelmed by saving money, according to the survey.
The survey showed that 50% of respondents engage in risky financial behavior. According to the survey, 19% drained their savings accounts, 18% avoided paying bills, 18% took on too much credit and 10% have taken bad financial advice.
But when it came to impulsive purchases there was a limit. The survey showed the magic number where consumers began to pause before purchasing was $50.
"Millennials and Gen Z have experienced constant economic uncertainty: entering the job market during a massive economic downturn, Millennials have struggled to gain financial stability and have been hit with tidal wave after tidal wave of world-shaking events," said Michael Hershfield, Accrue Savings founder and CEO.
"Gen Z has had to cope with technology pushing perfection, head-spinning U.S. and global politics, and a looming recession," Hershfield said. "Consumers want to prepare for an uncertain future, but the effect of the financial crunch younger generations have felt is also very clear: they are spending beyond their means, they feel pressure to keep up appearances, and they are anxious about saving."
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Regulators question safety of BNPL
The Consumer Financial Protection Bureau (CFPB) opened an investigation in December 2021 to examine the risks of BNPL services. It sent out orders to multiple providers to submit information that the agency could subsequently report to the public for transparency's sake. The CFPB stated at the time of the investigation that it was concerned with growing debt, BNPL regulation and data harvesting.
"Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too," CFPB Director Rohit Chopra said.
Since then, some steps have been taken to attempt to monitor BNPL providers and ensure consumers are only taking out what they can afford to pay back. Experian will soon be debuting a bureau specifically devoted to BNPL purchases and services, and is aiming to provide more transparency to the financial services industry.
If you racked up debt through BNPL programs, consider using a personal loan to pay it down and avoid late fees. Contact Credible to speak to a personal loan expert and get all of your questions answered.
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