4 in 5 shoppers turn to buy now, pay later to avoid credit card debt: Experian

However, survey data has indicated that many consumers are unable to pay their BNPL debt

Buy now, pay later (BNPL) services give consumers an opportunity to avoid accruing high-interest credit card debt, recent survey data said. But these payment plans may come with pricey consequences for missing payments. (iStock)

Buy now, pay later (BNPL) allows shoppers to break the cost of their purchase into smaller installments, often with little to no interest or fees. Consumers are increasingly turning to this payment option as it's adopted by major online retailers and traditional banks.

While BNPL still lags behind credit cards and mobile wallets, a new report from Experian said this alternative financing option is "here to stay." Nearly a fifth (18%) of global consumers have used BNPL in the past six months, and 57% of respondents said that BNPL could replace their traditional credit card.

What's more, 80% of U.S. shoppers said their top reason for using BNPL was to avoid credit card debt. 

Keep reading to learn more about this emerging payment method, as well as what consumers should know before entering a BNPL financing agreement. And if you're struggling to make BNPL payments or pay off high-interest credit cards, you might consider consolidating your debt into a personal loan. You can learn more about debt consolidation on Credible.


BNPL usage rises, but regulators concerned about debt burden 

Buy now, pay later has soared in popularity over the past several years, with its usage increasing by about 300% annually since 2018, Bloomberg reported. And although BNPL is traditionally an online financing tool, it's becoming more widely available in brick-and-mortar retail stores and even at gas pumps. 

As BNPL is increasingly adopted by consumers and retailers, banking regulators have expressed concern that it could be a debt trap for consumers who are unable to afford the short-term installment agreements. 

"Unaffordable credit may provide a quick inflow of cash, but over the longer term – which, in the case of BNPL, can be just a few weeks or months down the road – unregulated fintech products can add to the debt burden of consumers already overextended by debt," Mike Calhoun, president of the Center for Responsible Lending (CRL), said.

The Consumer Financial Protection Bureau (CFPB) is investigating this credit option, collecting information from five BNPL providers — Affirm, Afterpay, Klarna, PayPal and Zip — to determine the risks and benefits to its users. 

If you're struggling to repay BNPL debt, you might consider consolidating it into a single monthly payment through a fixed-rate personal loan. You can use Credible's personal loan calculator to estimate your repayment terms.


30% of BNPL users can't afford their payments

While BNPL users may benefit in the short term by breaking up large purchases into an installment plan, data suggests that banking advocates may be justified in their concern. Nearly a third (30%) of BNPL users can't afford their payments, according to a recent survey

And although over-borrowing may lead to steep late fees and interest charges, another study claimed that 36% of BNPL users are unaware of these consequences, and that many BNPL companies don't perform thorough credit checks.

"Too many people are taking out these loans without realizing the impact it could have on their finances," Barclays Partner Finance CEO Antony Stephen said.

Some Americans using BNPL may eventually face negative credit score impacts, with more major credit bureaus like Equifax and TransUnion adopting BNPL payment history in their underwriting process. 

If you're unable to afford your BNPL installments, you may consider opening a debt consolidation loan. This is a type of unsecured personal loan that you repay in fixed monthly payments over a set period of time, typically a few years. You can browse personal loan interest rates in the table below, and visit Credible to compare offers for free without impacting your credit score.


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