Buy now, pay later (BNPL) services have grown in popularity over the years, allowing consumers to pay a fraction of the cost at checkout, essentially dividing the purchase into smaller installments. With the holiday season just around the corner, it’s another purchase strategy consumers are leaning on to stretch an already tight holiday budget.
We covered similar sentiments in October when Adobe released its data which highlighted that U.S. holiday sales are expected to reach $222.1 billion this year, an increase of 4.8% year-over-year. In its research, Adobe found that more consumers will be leaning on BNPL services for their holiday purchases.
BNPL was one of the driving forces behind the massive record-level spend during the Thanksgiving holiday, per Adobe, with total dollars spent via BNPL reaching $8.3 billion during November 1 through November 27.
With inflation, rising costs, and economic uncertainty, consumers are seeking relief this holiday season, including deep discounts, cash back on credit card purchases, and BNPL loans. Retailers are keen on capturing sales and have been increasingly including BNPL options at the point-of-sale. What draws many consumers to this option is the fact that there are no credit checks, fees, or interest charges, if they abide by the provider’s terms. The instant gratification of having the item now also plays a crucial rule.
The Downsides
There are many sides to BNPL services, and while some aspects of it can benefit retailers and consumers, there are downsides as well. Consumer advocacy groups have been vocal about BNPL, pressing BNPL providers to add regulations and be more transparent about the perils of using such services.
In May, Consumer Reports warned that although BNPL platforms state that their loans charge no fees or interest, the reality is that there are some that do. In fact, some charge a late payment fee that can range from a few dollars to up 25% of the total value of the loan.
Because consumers may not have all the facts surrounding their BNPL loan—some of which is only apparent in the very fine print—they end up taking out multiple loans, missing payments, and accruing fees. This puts them in a detrimental financial state, leading many to take on debt they never anticipated taking on.
A recent Consumer Reports survey found that the financial health of a consumer who used BNPL was far worse than the consumer who didn’t use the service. Users of BNPL services were over twice as likely to face difficulties in making timely payments compared to those who did not use BNPL.
