Minneapolis (CNN Business)Buy now, postpaid installment plansare among consumers trying to spread costs PopularFor expensive purchases. But now, due to rising prices, cash-deficient shoppers are using these alternative payment methods for their daily purchases, such as daily coffee, full gas stations, and grocery stores.
This is a concern for economists and consumer advocates, as the use of these services surges, lacks transparency, and has little regulatory oversight. I'm wondering how much debt I have. Americans are actually invading.
Other household debt, such as credit card spending and car loans, is collected and tracked by the Federal Reserve, but financing is usually a non-bank source and comprehensive to credit bureaus. Not yet reported in a straightforward manner.
That is, the database of BNPL-related consumer debt levels, transaction volumes, delinquency rates, fees and interests is not publicly available.
"If you don't include buying now and paying later, there's definitely a big hole in people's understanding of their financial situation," said Matt Schulze, chief credit analyst at Lending Tree. I am. "And that's a problem for credit scoring companies, credit bureaus, and lenders."
Danger signal
Affirm and PayPal from Apple Up to Zip, BNPL transactions are currently estimated at least $ 100 billion annually. This is an analyst's number. It could skyrocket from $ 1 trillion to $ 4 trillion within a few years. These services split your purchase into four or more installments over a period of weeks or months. They are usually offered at zero or minimal interest and are often offered without a credit check.
One major drawback is the opportunity to take on debt fairly easily unnoticed, says Terry R. Bradford, a research specialist in the Kansas City Federal Reserve payment system. rice field.
She said that the installment payment process makes it appear that she is paying virtually nothing for the goods or services that someone is getting.
"That is, think about everything you buy in four batches, and as a result, you may incur more debt than you have to pay. All of them each time. "She said.
"The opportunity to build up debt with multiple" buy now "and" pay later "loans through multiple service providers is one of the biggest risks I see." She added.
Three major credit bureaus have stated that they will begin including BNPL activities in their credit reports, but they still need to rely on their providers for that information.
The Consumer Finance Protection Agency said it will address these concerns in addition to investigating unclear conditions, potential data collection, and other lack of protection. rice field. The agency is collecting information from BNPL providers and will publish the results later this year.
"This isn't getting the attention it deserves because everything is happening in the economy," he said. "In the meantime, youth and bank shortages have been severely hurt and can ruin their credibility over the years to come."
"People are buying more than they need to and admit it. Whether it's aggressive marketing, impulse buying, or the belief that there's more tomorrow." Regardless, they use a lot. Of these [services], "he said.
The biggest danger signal for Lux, the former Chief Risk Officer of Chase, is what people are buying with these services.
"They buy cleaning supplies, socks, sneakers, and everyday items," he said. "When people start their grocery-like daily purchases, you know there's a problem."
Means to achieve your goals
BNPL providers state that they see their offerings as a safer and more sustainable option for traditional lines of credit.
"Products and businesses are ultimately built entirely on the premise of long-term consumer success and repayment capacity," said Affirm's president of technology, risk and operations. Libor Michaelek says. "And if they can't, that's where we share negative results."
In a statement sent by email in response to a question from CNN Business, Klarna's A spokeswoman wrote: With each purchase, we constantly reassess our lending standards and spending limits and limit our use of the service until payment omissions occur.
Morning Consult's financial services analyst, Charlotte Principat, said some consumers use BNPL services in the hope that they will keep their budgets and balance their monthly finances. He said he was doing it.
"It signals me that this is a means to an end," she said. "It's a thoughtful choice as to how to go a little further in how to make money, reach the goals you want, and get what you feel you need."
This is a monthly choice. This is especially true for multiple Americans who do not have a stable salary, she said.
"They can handle incomplete data about what their monthly salary will be, and still be able to cover fairly fixed costs, and everyone needs to make discretionary purchases that should be allowed. There is, "she said. ..
No wiggle room
A single mother living in a small town in southern Texas commute 90 minutes daily. At her home, she has three growing young men.
To extend her budget, she also buys BNPL for any purchase or for necessities such as a recent $ 400 grocery bill. I'm using.
For Ramirez, distributing costs through the Buy Now app is better than putting tabs on your credit card, taking out a loan, or refraining from paying utility bills. It was an alternative. Most BNPL services do not charge interest or late fees if all payments are made on time.
"I don't want to do this forever, but it's good to know that I can always use it again if I get into rut in the future," she said.
CNN Video's Zach Wasser contributed to this report.
Correction: Earlier versions of this article had incorrect estimates of the size of the BNPL industry. The transaction value in 2021 was expected to be at least $ 100 billion.