4 in 5 shoppers are turning to buy now, pay later to avoid credit card debt: Experian

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Buy Now, Pay Later (BNPL) services offer consumers the opportunity to avoid racking up high-interest credit card debt, according to recent survey data. But these payment plans can have costly consequences for missed payments. (iStock)

Buy Now, Pay Later (BNPL) allows buyers to split the cost of their purchase into smaller installments, often with little or no interest or fees. Consumers are increasingly turning to this payment option as it is adopted by major online retailers and traditional banks.

While BNPL still lags behind credit cards and mobile wallets, a new report from Experian says this alternative funding option is “here to stay”. Nearly one-fifth (18%) of global consumers have used BNPL in the past six months, and 57% of respondents said BNPL could replace their traditional credit card.

Additionally, 80% of US shoppers said their main reason for using BNPL was to avoid credit card debt.

Keep reading to learn more about this emerging payment method, as well as what consumers need to know before entering into a BNPL financing deal. And if you’re having trouble making BNPL payments or paying off high-interest credit cards, you might consider consolidating your debt into a personal loan. You can read more about debt consolidation on Credible.

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BNPL usage rises, but regulators worry about debt burden

Buy now, pay later has grown in popularity over the past few years, with usage growing around 300% per year since 2018, Bloomberg reported. And although BNPL has traditionally been an online financing tool, it is increasingly available in physical retail stores and even at gas pumps.

As BNPL is increasingly embraced by consumers and retailers, banking regulators have expressed concern that it could pose a debt trap for consumers who cannot afford installment arrangements. short term.

“Unaffordable credit can provide a quick influx of cash, but over the longer term – which in BNPL’s case might just be a few weeks or months down the road – unregulated fintech products can add to the burden debt from already debt-burdened consumers,” said Mike Calhoun, president of the Center for Responsible Lending (CRL).

The Consumer Financial Protection Bureau (CFPB) is investigating this credit option, collecting information from five BNPL providers – Affirm, Afterpay, Klarna, PayPal and Zip – to determine the risks and benefits for its users.

If you are struggling to repay your BNPL debt, you can consider consolidating it into a single monthly payment via a fixed rate personal loan. You can use Credible’s personal loan calculator to estimate your repayment terms.

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30% of BNPL users cannot afford to pay

Although BNPL users may benefit in the short term from splitting large purchases into an installment plan, the data suggests that bank advocates may be justified in their concern. Nearly a third (30%) of BNPL users cannot pay their payments, according to a recent survey.

And while excessive borrowing can result in late fees and high interest, another study claimed that 36% of BNPL users are unaware of these consequences and that many BNPL companies do not perform thorough credit checks.

“Too many people take out these loans without realizing the impact it could have on their finances,” said Antony Stephen, CEO of Barclays Partner Finance.

Some Americans using BNPL could potentially face negative impacts on their credit score, with more major credit bureaus like Equifax and TransUnion adopting BNPL payment history in their underwriting process.

If you are unable to pay your BNPL installments, you may consider opening a debt consolidation loan. It’s a type of unsecured personal loan that you repay in fixed monthly installments over a set period of time, usually a few years. You can browse personal loan interest rates in the table below and visit Credible to compare offers for free without affecting your credit score.

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Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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