Consumers Turn to Buy Now, Pay Later to Avoid Further Credit Damage

Many people are using buy now, pay later (BNPL) options to circumvent more rigid aspects of credit cards, The Wall Street Journal reported.

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Photo by Patrick Tomasso via Unsplash

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Wimpy’s plaintive offer to “gladly pay you Tuesday for a burger today” was meant as humor, not fiscal advice. 

Many people are using buy now, pay later (BNPL) options to circumvent more rigid aspects of credit cards, The Wall Street Journal reported over the weekend. But the largely unregulated services are hardly a solution for poor financial situations and habits.

Settling the Credit Score

Americans have more than $1 trillion in combined credit card debt, with the average household total at $8,000. And if personal debt continues to build, the resulting credit-score plunge can make it more difficult to obtain a mortgage or auto loan, or lease an apartment.

But some consumers are avoiding official hits to their credit scores by making many  purchases — everything from groceries to elective surgery — via BNPL services like Affirm, Afterpay, and Klarna. These platforms mostly don’t report to the major credit bureaus and often have lower interest rates than credit cards, which are averaging around 21% annually. 

It’s a tempting alternative, but critics excoriate BNPL as predatory lending that tends to target people already in — or quickly approaching — dire financial straits: 

  • One 27-year-old Californian told the WSJ she used Afterpay to buy $500 of clothes then paid off the debt with a credit card. Shortly afterward, though, she needed money for car repairs and vet bills, but her rainy-day funds were gone and she incurred late fees on her credit cards. “(BNPL is) just an easier way for big companies to convince you to spend money you don’t have,” she told the paper. 
  • Credit cards can be difficult to navigate, but unlike most BNLP options, they’re regulated, have consumer fraud protections, and deliver perks like discounts on travel and cashback on certain purchases. Peter Smith of the Center for Responsible Lending told the WSJ his group is calling on regulators to provide stricter oversight on BNPL because “we see this as the Wild West right now,” he said. 

Holiday Cheer? For all the slings, BNPL is selling like hotcakes. A recent Morning Consult poll reported that more than one third of Americans are considering BNPL loans for their shopping this holiday season, an 8% jump from the same time last year.  Nothing like ringing in the new year with a pile of unpaid bills.