More Americans Expected To Utilize ‘Buy Now, Pay Later’

More consumers in the United States are expected to use “buy now, pay later” short-term loan payment plans this holiday season. Many credit experts have warned that these payment plans can cause consumers to find themselves in excessive debt more easily. However, retailers encourage these plans, as they allow shoppers to spend more, on average.

Many companies and lenders have begun to offer “buy now, pay later” payment plans. On average, these short-term loans require an initial payment upon checkout. Then, consumers can pay the rest of the balance in installments that can be spread out over multiple weeks or months.

Often, payments are required every two weeks. This then allows consumers to pay off the balance in four to six payments, on average.

To be approved for these short-term loans, consumers must agree to a soft credit check. Sometimes, lenders will offer zero-interest loans for first-time applicants, or for some specific agreements.

If a customer fails to make their payments, they often are kicked off of the platform or app. They may also face paying interest or added late fees.

For American consumers, these plans are easy ways to buy gifts during the holiday season. As many studies and polls have shown many Americans are balancing debt this year thanks to credit cards and student loans, these payment plan options can allow them to still buy presents while working around their budget.

Vivek Pandya, a lead analyst for Adobe Digital Insights, explained that many consumers are seeing increased costs this holiday season as a result of “rising interest rates, inflation in food prices, and resuming student loan repayments.”

However, Pandya also said that consumers want to spend this season, even amidst all of these economic problems. Pandya stated that “data has shown that the consumer remains resilient heading into the big holiday season and (they) are embracing every opportunity to manage their budgets in more efficient ways.”

According to an Adobe Analytics report, about one in five Americans will likely use a “buy now, pay later” plan this holiday season. Data has also shown that many young consumers use these plans more frequently than older consumers.

However, some analysts, including the Federal Reserve Bank of New York, state that these borrowing plans can hurt consumers, if not used correctly. According to these critics, lenders make it too easy to apply for these loans. As a result, many consumers find themselves with excessive debt.

Many of these short-term loan options also do not report to the three main credit bureaus. While consumers like this, as these loans don’t impact their credit scores, many analysts worry that it can lead to loan stacking, which ultimately leads to more excessive debt.