Fernando de Querol Cumbrera
Research expert covering construction, loans, leasing, savings, and debt
Buy Now, Pay Later (BNPL) services allow users to make purchases without having to worry about their payment until a later date. However, despite the success of this emerging market, it has not been free of controversy. There has been concern about BNPL services facilitating the accumulation of debt, or even triggering a so-called ‘debt spiral’, where users’ commitments keep growing and are increasingly difficult to pay up. Some experts suggest that BNPL users evade the feeling of guilt that is often tied to buying something that they can not afford, since they do not have to pay it while making the purchase. Are these accusations well-founded? Do BNPL users have a higher delinquency rate than the average borrower of consumer loans?
What BNPL users are most at risk?
In theory, any consumer can get into a difficult situation. For example, three percent of UK BNPL users had an open balance of over 1,000 British pounds. Those are amounts of consumer credit whose debt can get out of control if not properly managed. Most Gen Y and Z BNPL users in China believed that Buy Now, Pay Later can lead to overspending. Debt behavior is indeed an important factor which can put any consumer at risk, but certain groups like low-income individuals are particularly vulnerable. Even though they may have more difficulties to pay their debt, BNPL services can be appealing to them because most of them are free of interest. In Australia, 61 percent of financial counselors, a type of specialist that assist people in economic hardship, indicated that most of their clients had BNPL debt. Certain practices can make an already difficult situation into a debt spiral: According to survey data on the debt behavior of BNPL users in the United States a fifth of respondents were using credit cards to cover their BNPL payments.Are younger users more burdened with BNPL debt?
The usage of BNPL by U.S. consumers between the ages of 18 and 24 in 2021 was slightly higher than for older respondents - with individuals from 18 to 44 years old reporting similar usage rates, while ages 45 and up used BNPL less often. The value of the average BNPL purchase of Gen Z consumers in the U.S. was generally smaller than that of older generations, however. This is similar to the United Kingdom, where the average BNPL payment of 18- to 24-year-olds in 2020 was at least 40 British pounds less than other age group. These numbers may indicate that older consumers use BNPL for infrequent and expensive purchases, and younger buyers use it more often for smaller purchases. That said, users can also indebt themselves by making frequent purchases, even if each individual one on its own was not very high.
