‘Buy now, pay later’ borrowers are more likely to be financially distressed than non-users, according to a Consumer Financial Protection Bureau report.
According to the report, 62 percent of BNPL borrowers relied on at least one retail loan, compared to 44 percent of non-borrowers; 32 percent had personal loans, compared to 13 percent of nonborrowers; and 33 percent had student loans, compared to 17 percent of non-borrowers.
Eighteen percent of BNPL borrowers had at least one delinquency in another report, compared to only 7 percent of non-users. According to the report, BNPL borrowers generally had lower credit scores (580-669) than non-borrowers (670-739). “Among consumers who have open credit or retail cards, personal loans, auto loans or mortgages, BNPL borrowers were more than twice as likely to be delinquent on at least one of those products by 30 days or longer,” the report said.
Those with an annual income of between $20,001 and $50,000 along with consumers who are Black, Hispanic or female are more likely to use the service. “BNPL borrowers are more likely to be highly indebted or have revolving balances or delinquencies on their credit cards compared to consumers who do not use BNPL products,” the CFPB said. “BNPL borrowers are also more likely to use high-interest financial services such as payday loans, pawn loans and bank account overdrafts.”
According to the CFPB, it is unclear whether using BNPL services leads to more delinquencies on other obligations or if those already in a challenging financial situation are more likely to use BNPL to pay off higher-interest debt.
The report came after BNPL use grew rapidly during the pandemic. According to a previous CFPB report, the five firms surveyed — Affirm, Afterpay, Klarna, PayPal and Zip — originated 180 million total loans totaling more than $24 billion in 2021, a near tenfold increase from 2019. The CFPB has already signaled that it plans to issue new regulations for BNPL firms to ensure they adhere to similar rules as credit cards.