How Buy Now, Pay Later Increases US Credit Card Debt


Think of it as “buy now, pay later, pay later…and pay again after that”.

Nearly a quarter of respondents in a recent Credit Karma survey said their total debt had increased after using ‘buy now, pay later’ – or BNPL – services which allow users to repay purchases in installments. payments over a few weeks. That’s likely because these customers are using their credit cards to pay off their balances, according to an analysis from the credit score platform.

“They’re making the payments because they’re connecting a card to automate the payment, but their debt is growing,” said Colleen McCreary, an executive at Credit Karma.

BNPL mobile apps from companies like Afterpay Ltd. and Klarna Bank AB have spread to the retail world in recent years, gaining popularity with consumers for their interest-free, short-term loans that can be repaid in smaller installments. These services have also been seen as a potential threat to credit card companies, whose high interest rates have long frustrated users.

The goal was for ordinary people to be able to pay for larger purchases over time without hidden fees or interest payments, like the layaway plans of yore.

Still, 22% of survey participants — a nationally representative group of 1,028 American adults — said they use their credit card to cover their BNPL purchases. If they don’t pay off those credit card balances in full, there’s a high interest rate attached to them — an average of 16.34%, according to Bankrate.

Whether BNPL users are accumulating debt is an issue that the Consumer Financial Protection Bureau is also currently investigating. Some consumer advocates worry the tool will allow average Americans to push themselves financially.

Additionally, the share of consumers using BNPL is up, currently at 61% from 44% in Credit Karma’s September survey. Of those users, 51% said they had increased their usage over the past six months.

McCreary said one of the reasons is inflation, which currently sits at nearly 8% and has eaten away at Americans’ budgets. More than half of respondents said they use BNPL out of necessity.

The majority of them reported that the highest amount they ever owed for all of their BNPL services was between $51 and $500. But about 20% said their highest balance was over $1,001.


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