Americans relied on buy-now-pay-later more this year as inflation rose

With inflation crushing budgets in 2022, Americans are turning to buy-now-pay-later financing for the biggest shopping season of the year.

A survey by Ally Bank found that Americans used BNPL services twice as much in December as compared to just four months earlier. A TransUnion survey earlier this year found that 37% of Americans are leaning toward BNPL for the year’s other big shopping event — back-to-school shopping — up from just 2% in 2021.

A common concern among buyers then and now: Inflation, as a growing number of American households change their spending habits to stretch their budgets, making them more vulnerable to potential late payments and fees.

“We’ve seen increased use of buy-now-pay-letter services, driven mostly by millennials,” Mark Rose, senior director of retail business at TransUnion, told Yahoo Money. “You’re seeing consumers using these types of payment services as a way to deal with the inflationary environment by delaying those payments over a period of time, whether it’s two months or more.”

Shoppers check out Black Friday sales at a Gap store in Times Square during the Thanksgiving holiday in New York City, Nov. 24, 2022.  REUTERS/Brendan McDermid

Shoppers check out Black Friday sales at a Gap store in Times Square during the Thanksgiving holiday in New York City, U.S., on Nov. 24, 2022. (Credit: Brendan McDermid, REUTERS)

A record 196.7 million Americans shopped in stores and online during the five-day holiday shopping period from Thanksgiving Day to Cyber ​​Monday — 17 million new shoppers, according to the NRF — which shoppers said was not enough to boost overall retail sales in November. Spent more conservatively in the face of inflation.

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It can also be seen in BNP data.

While purchases using BNPL rose 68% in the week to November 27 compared to the previous week, according to separate data from Adobe Analytics, an increasing number of shoppers are using BNPL to fund low-cost products.

Salesforce found that the average order value of BNPL transactions across Cyber ​​Week fell by 5% – indicating that buyers financed lower-priced products this year than in 2021.

Much of this can be attributed to rising consumer prices this year. For example, more than a third of respondents to a Morning Consult holiday survey conducted in October said they planned to spend less than last year.

“People are really doing everything they can to stretch their budgets,” Matt Schulz, chief credit analyst at LendingTree, told Yahoo Money.

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A logo for the company Afterpay appears in a shop window  (Credit: Stephen Coates, Reuters)

A logo for the company Afterpay appears in a shop window (Credit: Stephen Coates, Reuters)

BNPL is also seen in use during the summer, as parents prepare their children for school.

TransUnion found that about 62% of shoppers used a buy-now-pay-later loan to buy books or other items needed for the classroom, while 52% used it to buy a single expensive item like a computer.

Only after they cut back on spending — buying cheaper or fewer items, the survey found. Again, the culprit was inflation. More than half (55%) of respondents to TransUnion’s back-to-shopping poll said they were concerned about inflation.

“People are getting more conservative and thinking, ‘How do I dial back spending and inflation?’ Rose said.

Shoppers find deals at Best Buy in Lone Tree, Colorado.  (Credit: Michael Ciaglo/Getty Images)

Shoppers find deals at Best Buy in Lone Tree, Colorado. (Credit: Michael Ciaglo/Getty Images)

But BNPL is no panacea, experts warn, even though its temptations are evident in a price hike environment.

Most BNPL companies allow you to pay a quarter — sometimes less — of your balance during online checkout if you set up automatic payment for the remaining balance. There is no interest like a credit card and no credit check required, which makes it especially attractive to people with bad credit or no credit history. For example, according to the Consumer Financial Protection Bureau (CFPB), 73% of applicants were approved for BNPL credit in 2021, up from 69% in 2020.

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But this financing can hurt your credit if you miss a payment. Late payments may also incur fees. According to the CFPB, 1 in 13 BNPL borrowers in 2020 to nearly 1 in 2021 were charged at least one late fee.

According to the CFPB, consumers also have less protection than other financing options such as credit cards due to a lack of regulatory oversight over nonbank BNPL issuers.

Still, those concerns weren’t enough to keep shoppers from planning spending this holiday season, Schulz said, meaning shoppers are “being more cautious.”

“They just have to make sure they’re going to be able to pay back those transactions,” Schulz said, “and not overstretch their budget.”

Gabriela is a personal finance reporter for Yahoo Money. Follow him on Twitter @__GabriellaCruz.

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