The Consumer Financial Protection Bureau (CFPB) has released a new study on consumer use of buy now, pay later (BNPL) user characteristics. Although BNPL has been around for a while, it has not received much attention until now. Buy now, pay later, gained popularity in 2019 and grew by 10 fold during 2019-2021. BNPL refers to only 0% interest for a loan of 4 or less payments. Commonly this is seen online for purchasing items that one in the past would of just paid in full for.
BNPL loans typically amount to around $135 and are set to be paid off within six weeks of the original purchase. Although these loans offer a 0% interest rate for the agreed-upon payment structure, they often have high fees and hidden costs when a payment is missed. Nevertheless, when compared to traditional credit cards, these loans tend to be a less expensive option.
The study found that 17% of the surveyed group had taken out this type of loan in the past year, and it was more likely to be someone who was not a Caucasian male. Those with incomes between $20k and $50k were the most likely to use BNPL, but those with at least a high school diploma but less than a bachelor’s degree were less likely to use this loan type. Other characteristics of those who took out these loans were having the ability to get other forms of credit but often having high outstanding amounts on current cards and may have been denied credit in another form. These individuals often did not have a prime credit score. Due to this fact, it was unclear why they were more likely to use BNPL. Often, those who took out these loans paid with a debit card, meaning they were not unbanked. Most of those who used BNPL were under the age of 65.
The study also acknowledges its faults and mentions how those with no credit score were not studied, those who picked up BNPL habits after Covid, and those who misunderstood what qualified as a BNPL loan.
There is still a lot of research needed in this area, especially since this information comes from a time when things were not typical due to a worldwide pandemic. Although this loan type is appealing, especially to those with a lower than prime credit score, it may still not be the best option for those in this group as they are more likely to experience financial hardship. If you are financially stable, however, the added bonus of 0% interest may give you a chance to leverage this strategy in your personal finance journey.
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