Buy now, pay later transactions likely headed for record holiday season
About $18.5 billion of our holiday purchases this year are expected to be made using buy now, pay later, according to data from Adobe. That’s a new record, up more than 11% from last year.
Typically, buy now, pay later programs let shoppers split their purchases into installments paid about every two weeks, generally without charging interest. Some also offer more traditional financing plans that do charge interest.
An earlier version of buy now, pay later? Layaway. You know: Pay now, slowly … receive later.
“In a way, the concept of buy now, pay later has been around for decades. But it’s now having a digital moment,” said Vivek Pandya, lead insights analyst for Adobe.
Pandya said buy now, pay later options have become common. Wherever people have a digital shopping cart, buy now, pay later is there.
Plus, with inflation, the items in those carts have become more expensive. “You have some consumers who’ve been in a more strained financial position, and they need to lean on BNPL to get what they need,” he said.
Consumers often use buy now, pay later for the big stuff, Pandya said. Think a television or a mattress. But in the past couple of years, he’s seen people using it to buy the necessary stuff. Like groceries.
Also, about three-quarters of buy now, pay later spending takes place on mobile devices, which make it easy to hit “Buy.”
“Mobile shopping really facilitates a lot of impulse buying,” Pandya said.
Additionally, with interest rates still high, “the 0% interest spread across two months is pretty attractive, right?” said Trevor Forbes with TSG, a payments analytics firm. “Being able to split it up, and as you get your check, you can make that deposit towards that purchase without having to do it all at once.”
There can be problems that come with using buy now, pay later. Like if you don’t have enough money to pay later.
“That nonpayment can wind up on your credit report,” said Lisa Gill with Consumer Reports. “And nonpayments start to really ding that credit score, pretty hard.”
On the flip side, Gill said some consumers use buy now, pay later to make that first payment, and then never receive what they thought they bought. Others have trouble returning it.
“So they were still paying on merchandise that they had never received or that they were extremely unhappy with … and that is where it gets into, like, ‘Ugh,'” she said.
Gill said it’s also possible to take out a bunch of buy now, pay later loans at the same time with different companies. And the more loans people have, the more likely they are to get overextended and wind up in what she called a “financial kerfuffle.”