In the last few years, buy now, pay later, or BNPL, services have been increasing in popularity in the U.S., especially among younger consumers who have sought out alternatives to credit cards, creating a $100 billion industry with no signs of slowing down.
Still, according to data from a report by Breeze, the modern insurtech company, which surveyed 1,500 Americans during the first week of 2022, BNPL’s “lenient approach to credit has potential pitfalls.”
Notably, the company’s survey found that 74 percent of Americans have used BNPL to purchase something with 61 percent of respondents saying BNPL has reduced their credit card usage. Concurrently, 62 percent of BNPL users said they believe the usage of the flexible payment option will increase in 2022 with 63 percent of respondents saying they believe BNPL is a better product for financing purchases compared to a credit card.
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With the median price point where consumers say they prefer to start using BNPL being $500, 57 percent of consumers said using BNPL has caused overspending.
“Like anything else, there are pitfalls,” said the authors of the report. “For BNPL, it’s consumers spending money they don’t readily have and overreaching their credit by opening multiple BNPL accounts at once. Because there’s often not a vigorous credit check for a BNPL account, consumers can quickly overextend past a comfortable financial situation, especially if they are opening multiple BNPL accounts at once. This makes it more likely to miss or make late payments, which can damage credit and cause late fees.”
Further, the authors of the report cited consumers opening multiple BNPL accounts at once as one possible reason for overspending. In fact, of the 36 percent of respondents who said they have missed or made a late BNPL payment, there was a strong correlation to those who had multiple accounts.
Overall, the authors of the report said, it is important to note that data in the survey showed 45 percent of BNPL users choose to use BNPL due to having a poor credit history and usually not being eligible for a credit card.