As the majority of purchases move to digital, we are seeing multiple new buy now, pay later (BNPL) platforms gain popularity, especially among younger shoppers. Millennials and Gen Z are enticed by the BNPL trend because they believe that by paying for a bigger purchase over time, rather than utilizing their traditional credit cards, that they are saving money or spending it more wisely. While it may be appealing and seem like a good deal to consumers looking to purchase a luxury or higher price point item that they otherwise might not be able to afford, this trend is actually encouraging irresponsible spending and can become detrimental to one’s overall financial health. Before signing up, people should understand that BNPL platforms are not as beneficial as they first appear to be.
Top Buy Now, Pay Later (BNPL) Trends for 2022
BNPL means that while someone may not have been in the financial position to purchase an item at full price, now they can purchase it immediately, and pay for it in monthly installments.
While it feels novel, this concept is not new and is similar to stores that offer layaway plans where buyers can put down a deposit on the items they want in-store, and pay for it in installments. But with layaway, stores most often require that the item be paid off in full before the customer can take it home. Because of this, layaway is commonly used as a practical alternative for items that people actually need. BNPL on the other hand can fuel impulse buying because it allows the purchaser to obtain the item before paying it off in full—making it very easy to fall into a problematic purchasing cycle.
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Online platforms like Afterpay, Sezzle and Klarna make it easy for consumers to utilize BNPL when making digital or e-commerce purchases. The BNPL offer is usually shown before the buyer even adds the item to their shopping cart, making it shockingly top of mind, at the most minimal of touchpoints. With a lower monthly installment price listed under the much more expensive price in full, it seems like a no brainer to take advantage of, but failure to keep up with the monthly payments can result in accruing late fees and interest that feed into a cycle of debt where consumers end up paying more than the original price of the item. The goal of these platforms is to generate sales by altering the perception of high-priced items to appear to be more affordable and attainable to those who more often than not cannot afford the item to begin with.
While purchasing in installments makes consumers feel better about the purchase at the moment, this payment structure has actually caused 34% of BNPL users to fall behind on payments, with 72% of those who missed a BNPL payment believing their credit score declined. Like most loans, when a payment is missed, most platforms will charge late fees or increased interest, which can quickly pile up. It’s a slippery slope and what many do not realize is that BNPL spending can lead to potentially falling into debt and negatively impacting their credit score, in addition to paying more than the item’s original price due to added late fees.
With BNPL products becoming more popular than ever, it’s important for consumers to understand that they are growing in popularity among merchants because they encourage consumers to over-spend. Before agreeing, consumers should be cautious, read terms and consider their options to determine if they should proceed. It’s critical to take a step back and consider the bigger financial picture and potentially negative consequences, rather than the enticing, in-the-moment offer.
While it’s psychologically appealing to be able to purchase items without the impact of paying full price upfront, consumers need to remember that there is no actual deal or discount being offered and that in the end, they are still paying full price for an item, with the added risk of accruing debt and negatively impacting their credit score. With the ease of digital spending, shoppers need to be mindful of the risks associated with BNPL and how difficult it can be to regain financial stability after making poor spending choices.
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