NEW YORK–In early 2024, credit unions are going to need to be wary of members who have accumulated loan debt during the holidays that isn’t showing up on credit reports.
As CUToday.info has regularly reported, an increasing number of consumers have turned to buy now, pay later (BNPL) financing, a trend that is expected to accelerate during the holiday season.
In a new report, the Wall Street Journal profiled numerous consumers who said they are aware BNPL financing won’t affect their credit scores, which is exactly why they turned to the financing method.
The report cited one woman in New Mexico, for example, who has been using BNPL installment loans from Afterpay to buy groceries, pricey skin-care products and art supplies for her 10-year-old son, which keeps the balance on her two credit cards low—"and the credit agencies in the dark.”
All of that is raising “alarms” at consumer-advocacy groups, according to the Journal, which noted big BNPL players like Affirm and Klarna provide fewer protections than credit cards and “encourage shoppers to take on more debt than they can afford.”
The Journal cited data from LexisNexit Risk Solutions showing a quarter of all American adult consumers have used BNPL solutions, and that over Black Friday and Cyber Week, such payment plans accounted for 7.2% of all online sales, a 25% jump from last year.
Loans up to $25,000
“Buy now, pay-later firms can extend loans as large as $25,000, offering annual interest rates ranging from 0% to 36%,” the Journal reported. “The rates offered are dynamic and depend on the borrower’s standing, payment timeline and the item being purchased. Retailers can also pay fees to offer better terms, such as 0% interest, at checkouts.
“What started as a payment option mostly for luxuries like beauty products and purses is rapidly expanding to other categories, including groceries and medical procedures. Shoppers’ use of these payment plans for “necessary” and “everyday” purchases expanded 434% from 2020 to 2021, according to the Consumer Financial Protection Bureau,” the report continued.
6-Month Loan, 36% APR
What kind of debt are consumers and members taking on? The Journal profiled one man, a truck driver from Texas, who has used Affirm to buy groceries and household essentials during some weeks and whose recent bill at Walmart was roughly $465. Affirm offered him a choice of three payment plans. He chose a six-month loan with a 36% interest rate that didn’t require a down payment, the report said.
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