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By Hugh Cameron
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The number of Americans exploring short-term financing, or "buy now, pay later" loans, to help cover purchases has risen to an all-time high.
According to a recent survey by online lending marketplace LendingTree, 41 percent of Americans have considered a "BNPL" loan in August—up five percent from July and marking the highest monthly figure since the firm began its surveys in December 2021.
In addition, 41 percent of current BNPL users reported making a late payment at some point in the past year, up from 34 percent this time last year.
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Why It Matters
While still largely used for discretionary purchases, research has shown that Americans are increasingly turning to BNPL to make ends meet, and using these deferred payments for everyday essentials such as groceries and fuel. The growing popularity of these methods, as well as the rise in missed payments, has been taken by some as a signal of mounting financial distress among U.S. consumers.
"When people need to break up their grocery bill into installments, that speaks volumes about the cost of living, wages and the job market," Carol Pope, a personal loans expert at LendingTree, told Newsweek.
What To Know
LendingTree's survey included responses from 2,000 American consumers, and revealed that half (50 percent) expect to apply for a BNPL loan within the next six months, up five points from July and the most since 51 percent in June 2023.
Some 60 percent of BNPL users admit to having had multiple loans at one time. Gen Z's usage patterns stand out, 64 percent of those surveyed admitting to have used a BNPL loan, and 71 percent of this group having held more than one loan simultaneously.
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Pope, LendingTree's senior personal loans and autos writer, said that the growing popularity of BNPL loans was due to both mounting financial strain among consumers, but also the innate appeal of these payment options.
"For many, wages aren't keeping up with inflation, and the current job market is tough. People are looking for ways to bridge the gap between pay days," Pope told Newsweek.
However, she added that BNPL apps "are easy to use and since most only require a soft credit check, the barrier to entry is lower than credit cards and other financing options."
A quarter (25 percent) of BNPL users report having used the loans to purchase groceries, up from 14 percent a year ago. Groceries were the fourth most popular category for a BNPL loan. Clothing, shoes and accessories came in first at 41 percent, followed by technology devices at 39 percent and home decor, furniture and appliances at 33 percent.
Additionally, 16 percent of users said they had relied on BNPL for food delivery or takeout.
This comes after payment provider Klarna partnered with food delivery service DoorDash in March to offer customers the ability to finance their orders in installments. The companies emphasized that this was done to give customers greater flexibility, but economist Gary Hufbauer at the time described this as "a barometer of true desperation" for consumers.
"Anyone who would use these schemes for low value purchases must already be in a financial bind," Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, told Newsweek on Thursday, adding that BNPL provides "an easy route to pile up excessive debt."
Personal finance experts and consumer rights advocates have also been wary about the implications of an overreliance on BNPL, warning that these loans often lack the consumer protections that come with traditional credit cards and that, without careful management, can result in further financial strain.
"Consumers are at risk of overextension given that lenders are not required under the law to meaningfully check a borrower's ability-to-repay," said Nadine Chabrier, senior policy counsel at the Center for Responsible Lending. "There is not currently a good way to check whether the borrower has multiple loans at the same time via credit report or otherwise."
"While regulations hold credit card companies accountable to resolve disputes promptly, BNPL companies aren't under covered by the same rules," said Adam Rust, director of financial services at the Consumer Federation of America, a nonprofit research and advocacy group focused on U.S. consumers.
"There's a risk an issue could devolve into a game of finger pointing between the retailer and the lender," he told Newsweek.
However, LendingTree's survey found that BNPL lenders were likely to waive or lower late payment fees in a majority of cases in August. Among BNPL users, 62 percent said that their lender had lowered a late fee when this was requested.
What People Are Saying
The National Consumer Law Center, a nonprofit focused on consumer protection issues, wrote in May: "BNPL credit can make purchases look cheaper than they are if consumers focus on the initial one-quarter payment rather than the entire purchase price. The full price will typically be due in six weeks, which is little more than a single monthly cycle for rent and other bills. If a buyer cannot afford to make a purchase in full, it is not clear if deferring the payment for six weeks will make the purchase any more affordable, and it may cause problems paying other bills."
Nadine Chabrier, senior policy counsel at the Center for Responsible Lending, told Newsweek: "One of the more common reasons people use BNPL is because they cannot afford the full purchase price at the time of the transaction. This suggests that people turn to BNPL when they are having financial difficulties."
Carol Pope, LendingTree's senior personal loans and autos writer, told Newsweek: "The biggest risk of BNPL aren't necessarily late payment fees—although those aren't good. It's impulse spending. The most-often bought items with BNPL are clothes, shoes and accessories, followed by tech devices like laptops and gaming systems. When you only have to put 25 percent down (as is the case with the most popular BNPL payment plans), a $200 pair of shoes don't seem all that expensive, even if you don't really need them."
"Further, juggling multiple BNPL loans is unfortunately common—and risky," she added. "BNPL requires you to repay via automatic payments. When you have multiple payments being withdrawn from your account at all different times of the month, it's easy to lose track."
Adam Rust, director of financial services at the Consumer Federation of America, told Newsweek: "BNPL companies contend their product is financially inclusive, and it is true that some people may qualify for BNPL who would not be able to receive a credit card. Nonetheless, no evidence exists to show that BNPL promotes financial health. All too often, BNPL loans leave people in more debt than they can afford."
What Happens Next?
In June, credit scoring giant FICO announced that it would begin incorporating BNPL loan data when calculating consumer credit scores. The company said this was due to "increasingly important role" BNPL plays in consumers' financial lives, and that this will allow lenders to "more accurately evaluate credit readiness."
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