Wakeup call: Is BNPL setting up younger consumers for credit trouble?

Two studies — one from the N.Y. Federal Reserve Bank and the other from Morning Consult — suggest that buy now, pay later plans are big contributors to the financial pressure on consumers who use them. The Fed goes so far as to warn that a large share of BNPL users are 'financially fragile.' What BNPL providers do next will impact the growth trajectory for this lending segment. Other consumer lenders should also take heed.

Buy now, pay later credit may be prompting younger Americans to get in over their heads in debt.

This is the conclusion of two separate studies, one from Morning Consult and another from the Federal Reserve Bank of New York. The Morning Consult study is based on a survey of 2,223 U.S. adults taken in August. The Fed surveyed 1,000 people in June for its study.

This form of borrowing — which has gained a sizable foothold among more traditional consumer financing options in a relatively short period — is also evolving. Originally, 0% interest “pay in four” plans put BNPL on the map. Now, there are interest-bearing plans running six weeks, 12 weeks, or even longer, and the interest sometimes runs as high as 36%.

“Despite being fairly broad-based, with significant take-up among higher-educated and higher-income respondents, overall we find that those with lower credit scores and greater unmet credit needs make up a disproportionate share of all BNPL users,” the N.Y. Fed researchers said in a blog post about their findings.


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