Many consumers who use buy-now, pay-later products do so without any indications of financial stress, although they are more likely on average to be highly indebted and use high-interest credit products, according to a study released today by the Consumer Financial Protection Bureau. Still, the study noted those issues pre-dated widespread usage of BNPL.
The study’s authors concluded that 17% of consumers borrowed using BNPL during a one-year period starting in 2021. Consumers of every age and social group used BNPL, but Black, Hispanic and female consumers had a much higher probability of use compared to the average, as did consumers with annual household income between $20,001-$50,000 and those under the age of 35, according to the CFPB.
“BNPL borrowers were, on average, much more likely to be highly indebted, revolve on their credit cards, have delinquencies in traditional credit products and use high-interest financial services such as payday, pawn and overdraft compared to non-BNPL borrowers,” the authors said. “They are more likely to also have traditional credit products like credit and retail cards, personal loans, and student loans, but have lower liquidity and savings compared to non-BNPL borrowers.”
However, those same markers were present before widespread usage of BNPL, the authors added. “An important question for future research is whether BNPL improves the financial health of consumers in distress or exacerbates these differences.” The study also concluded that a majority of BNPL borrowers would face credit card interest rates from 19% to 23% annually if they had chosen to make their purchase using a credit card.