A growing number of consumers are taking out “buy now, pay later,” or BNPL, loans to cover everyday living expenses, data shows, a sign of the precarious financial state facing many U.S. households.
A quarter of Americans now use BNPL loans to pay for groceries, up 14% from last year, according to a recent survey from LendingTree. The personal finance firm also found that more people are using such financing to pay for clothing, technology and housewares.
BNPL loans — which are readily available from financial technology companies such as Affirm, Klarna and PayPal, as well as from household names like Apple — let shoppers make interest-free purchases while spreading payments over several installments. The most common BNPL loans are “pay in four” products, which divide the total cost of a purchase, usually ranging from $50 to $1,000, into four equal payments. Consumers pay the first 25% at the point of sale and the remaining three installments over the next six weeks.
Although such credit arrangements can help consumers afford an item in the short term, some BNPL loans can carry interest changes and fees, potentially leading consumers to rack up debt. According to LendingTree, 41% of customers who have used a BNPL loan say they have made a late payment in the past year, up from 34% the year prior. And while most lenders don’t charge interest, they do charge late fees for missed payments, which can add up over time.
Despite such risks, BNPL loans have exploded in popularity, including for modest transactions. For example, Klarna in March partnered with food delivery service DoorDash to offer a BNPL plan that consumers can use to pay for meal and grocery deliveries. DoorDash said it was launching the service to let customers postpone payment to “a more convenient time, such as a date that aligns with their paycheck.”
LendingTree chief consumer finance analyst Matt Schulz said BNPL loan providers make it easy for customers to use them for a wide range of purchases. “They give people more options, which can be good if it’s managed well,” he told CBS News’ Kelly O’Grady.
At the same time, the growing number of Americans using the loans to buy food “clearly shows that there are a lot of people who are struggling with high costs at the grocery store and elsewhere, and who are looking for whatever ways they can find to help them make ends meet a little easier,” Schulz said.
“If you make a bunch of purchases with a credit card, you’re just making one payment at the end of the month,” he added. “But if you get a bunch of different BNPL loans, it can be a challenge to manage them. That’s especially true if you’re on a tight budget without a lot of wiggle room, and you’re inexperienced with managing payments.”
LendingTree survey data shows that about one in four BNPL users say they’ve had at least three active BNPL loans at one time.
“That speaks to how easy these are to get and how easy it is to overspend on them,” Schulz said.