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

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

An Ally Bank survey showed that twice as many Americans used BNPL services in December than just four months ago. A TransUnion survey earlier this year found that 37% of Americans rely on BNPL for the year’s other big shopping event — back-to-school shopping — up from just 2% in 2021.

A common concern among buyers past and present: inflation, as more and more American families shift their spending habits to stretch their budgets, making them more vulnerable to potential late payments and fees.

“We’ve seen an increase in the use of buy-now pay-later services, led mostly by millennials,” Mark Rose, senior director of TransUnion’s retail business, told Yahoo Money. “You see consumers using those types of payment services as a way to deal with the inflationary environment to delay those payments for a period of time, whether it’s two months or longer.”

Shoppers look to checkout early Black Friday sales at the Gap Store in Times Square on the Thanksgiving holiday in New York City, US, November 24, 2022. REUTERS/Brendan McDermid

Shoppers look to checkout early Black Friday sales at the Gap Store in Times Square on the Thanksgiving holiday in New York City, US, November 24, 2022. (Credit: Brendan McDermid, REUTERS)

Although a record 196.7 million Americans shopped in stores and online during the five-day holiday shopping period from Thanksgiving to Cyber ​​Monday — up 17 million new shoppers, according to the NRF — that wasn’t enough to boost overall retail sales in the month. November as a buyer. spent more conservatively in the face of inflation.

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That can be seen in the BNPL data as well.

While purchases using BNPL jumped 68% in the week to November 27 compared to the previous week, according to Adobe Analytics, more shoppers are using BNPL to finance low-priced items, according to separate data.

Salesforce found the average order value for BNPL transactions across Cyber ​​Week dropped 5% — indicating buyers are financing lower-priced items this year compared to 2021.

Much can be attributed to this year’s increase in consumer prices. 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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The logo for the company Afterpay is seen in the shop window.  (Credit: Stephen Coates, REUTERS)

The logo for the company Afterpay is seen in the shop window. (Credit: Stephen Coates, REUTERS)

The use of BNPL also appears in the summer, when parents prepare their children for school.

TransUnion found that about 62% of buyers used buy-now pay-later loans to buy books or other items needed for the classroom, while 52% used them to buy an expensive item like a computer.

That’s after they cut back on spending – buying cheaper or fewer items, the survey found. Again, the cause is inflation. More than half (55%) of TransUnion respondents in the shopping return poll said they were worried about inflation.

“People are becoming more conservative and thinking, ‘how do I dial back spending and inflation? Rose said.

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

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

But BNPL is not a panacea, experts warn, despite its obvious appeal in a bullish environment.

Most BNPL companies allow you to pay a quarter — sometimes less — of your total debt during online payments if you set up automatic payment for the remaining balance. There are no benefits like with a credit card and no credit check is required, making it very attractive to those with bad credit or no credit history at all. For example, 73% of applicants were approved for BNPL credit in 2021, up from 69% in 2020, according to the Consumer Financial Protection Bureau (CFPB).

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But this financing can hurt your credit if you miss a payment. Late payments can also mean fees. Nearly 1 in 9 BNPL borrowers incurred at least one late payment in 2021, up from 1 in 13 in 2020, according to the CFPB.

Consumers also have fewer protections compared to other financing options such as credit cards because of a lack of regulatory oversight of non-bank BNPL providers, according to the CFPB.

Still, that concern still isn’t enough to stop shoppers from planning spending this holiday season, Schulz said, it just means shoppers are “being more careful.”

“They just need to make sure that they’re going to be able to pay back the transaction,” Schulz said, “and not overextend their budget.”

Gabriella is a personal finance reporter at Yahoo Money. Follow him on Twitter @__gabriellacruz.

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