Spending

Over 40% of shoppers have made a late payment using buy now, pay later: That's 'an awful lot of people'

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Key Points
  • The share of American adults who've used buy-now, pay-later services in 2022 has increased to 43% — a 12 point jump from 2021, according to LendingTree.
  • Of those who have used these kinds of services, 42% have had to pay some kind of late fee.
  • The share of baby boomers who used BNPL in the last year doubled, jumping from less than 10% to more than 20%.

If you've bought anything online in the last two years, you probably noticed a new button appearing pretty frequently when you add your items to your cart. Once available for only certain purchases, the option to buy now and pay later has exploded across online retail and now you can pay for almost anything in installments.

The share of American adults who've used buy-now, pay-later services in 2022 has increased to 43% — a 12 point jump from 2021, according to LendingTree.

Of those who have used these kinds of services, 42% have had to pay some kind of late fee. "That's a really big number," says Matt Schulz, chief credit analyst at LendingTree. "That means an awful lot of people have paid late with these loans."

It's particularly worrying because, while the idea behind buy-now, pay later is not new, they've only become widespread across online retailers in the past few years, Schulz says.

"People have been pretty good about paying their debt on time during the last two years. Even in the depths of the pandemic, people were generally doing a pretty good job of making payments on loans," Schulz says. With "credit cards in particular, we've seen really low delinquency rates, but I think everybody expects that those rates are going to rise sooner rather than later."

If 2 in 5 people have already missed a buy-now, pay-later payment when delinquency rates are this low, it could portend even more missed payments as those rates start to climb again, Schulz says.

The percentage of boomers using BNPL has doubled

One of the more interesting nuggets from LendingTree's recent survey is the breakdown of who is using buy-now, pay-later at the virtual register.

Baby boomers, Americans born between the end of World War II and 1965, and Gen Xers, those born between 1965 and 1980, for example, saw big increases in their adoption of buy now, pay later. The share of boomers using BNPL more than doubled from last year to this year, while the share of Gen Xers went up by 50%, according LendingTree.

"Things don't become a phenomenon, like buy-now, pay-later has become, if only some people are using it," Schulz says. "We've certainly seen interest in this spread through all genders, through all generations and through all incomes."

That includes higher income individuals, who already have credit card debt, Schulz says. Some of these products are geared toward lower-income folks who might struggle to get approved for credit cards, but their adoption has been widespread across income brackets.

"Higher income folks have used these a lot as well," Schulz says. "They're just using that in a different way."

They might buy certain things online using buy now pay, later, and use their credit cards or personal loans for home remodels or other bigger purchases, for example.

Buy now, pay later likely to continue growing as interest rates rise

Demand for buy now, pay later will likely only increase in the coming months as interest rates rise and consumers look for alternatives to increasingly expensive credit card debt, Schulz predicts. He's already seen an uptick as credit card companies have begun clawing back some of the generous terms that dominated the market last year, like balance transfer cards with long repayment windows or cards that offered a year or more of interest-free charges.

"Balance transfer credit cards are really, really popular. Banks love them. Consumers love them," Schulz says. But "we expect those types of offers to get more expensive for the banks to make, and so you may end up seeing changes in what those offers look like in the next six months to a year."

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As more consumers begin using buy now, pay later, it's important that they be meticulous in tracking spending, Schulz says. With so many companies offering these services, it can be easy to lose track of what you owe to whom and when, and missing a payment can ding your credit score.

Whether it will and by how much will depend on the company's fine print, so read carefully.

There's a risk that buy now, pay later will urge people to overspend, particularly now that almost everything is more expensive than it was a year ago. And just because you can afford something using a buy-now, pay-later service doesn't mean that you should get it, says Dr. Regine Muradian, a clinical psychologist and board member at National Debt Relief.

"Look at the total amount of what it is and ask yourself if you really need this," Muradian says. If something will cost $30 per month, for example, ask yourself: "What is it that I can do with that extra $30 If I don't really need this item? because at the end of the day, this item is going to be a short term feeling of happiness."

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