Skip to main contentSkip to main content
You have permission to edit this article.
Edit
special report spotlight

As 'buy now, pay later' plans grow, so do delinquencies

From the Weekend reads: Queen's death a sign of disappearing WWII generation; cheetahs back in India series
  • Updated
  • 0
Buy Now Pay Later Worries

FILE - Basketball sneakers are seen at a game, Tuesday, March 29, 2022, in Chicago. Buy now, pay later loans allow users to pay for items such as new sneakers, electronics or luxury goods in installments. 

NEW YORK (AP) — Americans have grown fond of "buy now, pay later" services, but the "pay later" part is becoming increasingly difficult for some borrowers.

Buy now, pay later loans allow users to pay for items such new sneakers, electronics, or luxury goods in installments. Companies such as Affirm, Afterpay, Klarna and PayPal have built popular financial products around these short-term loans, particularly for younger borrowers, who are fearful of never-ending credit card debt.

Keep scrolling for a Q&A on what you should know about "buy now, pay later"

Now, as the industry racks up customers, delinquencies are climbing. Inflation is squeezing consumers, making it tougher to pay off debts. Some borrowers don't budget properly, particularly if they are persuaded to take out multiple loans, while others may have been credit risks to begin with.

"You have an industry with a higher concentration of subprime borrowers in a market that hasn't been effectively tested through (this type of economy), and you have a kind of a toxic brew of concerns," said Michael Taiano, an analyst with Fitch Ratings, who co-wrote a report in July highlighting some of the concerns with the industry.

The most popular type of buy now, pay later loans allow for four payments over six weeks — one payment at the time of purchase and three others that borrowers often try to sync up with pay periods. Longer-term loans for bigger purchases are also available. Most of the short-term loans have no interest attached to them. Companies that do charge interest can clearly state upfront how much a borrower will pay in financial charges.

Given those features, consumer advocates and financial advisors initially had seen buy now, pay later plans as a potentially healthier form of consumer debt if used correctly. The biggest concern had been late fees, which could act as a hefty finance charge on a small purchase if a borrower is late on a payment. The fees can run as high as $34, plus interest. But now as delinquencies are rising, and companies are being more aggressive in marketing their products, advocates see a need for additional regulation.

The industry is growing rapidly, according to a report released Thursday by the Consumer Financial Protection Bureau. Americans took out roughly $24.2 billion in loans on buy now, pay later programs in 2021, up from only $2 billion in 2019. That industry-wide figure is only expected to jump even more. Klarna's customers bought $41 billion worth of product on its service globally in the first six months of the year, up 21% from a year ago. At PayPal, revenue from its buy now, pay later services more than tripled in the second quarter to $4.9 billion. Read the full story here:

***

AP Personal Finance Reporter Cora Lewis contributed to this report from New York.

0 Comments

We're always interested in hearing about news in our community. Let us know what's going on!

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Related to this story

Most Popular

Listen now and subscribe: Apple Podcasts | Google Podcasts | Spotify | RSS Feed | Omny Studio

Get up-to-the-minute news sent straight to your device.

Topics

Trending

Breaking News