Home Credit card types Most Consumers Remain Skeptical of the Benefits of Buy Now, Pay Later: Report

Most Consumers Remain Skeptical of the Benefits of Buy Now, Pay Later: Report

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A recent report indicates that an increasing number of consumers, facing financial struggles, are turning to buy now, pay later (BNPL) services as an alternative financing option.

According to the J.D. Power report, 80% of consumers are familiar with BNPL products, and within the past 90 days, 34% have utilized a BNPL program. Interestingly, among the major users of BNPL, 55% are individuals who feel financially overextended, while 30% are customers with healthy financial situations.

Of the 80% of Americans aware of BNPL, 60% find the option helpful, as revealed in the survey. However, despite the apparent convenience, 64% do not believe that using BNPL has improved their overall financial situation.

BNPL providers collaborate with retailers to offer shoppers the option to split the cost of online purchases into several interest-free installments at checkout. Nonetheless, late or missed payments can lead to penalties and additional fees.

“Amidst ongoing concerns about the debt ceiling crisis and the persistent presence of inflation, customers are expressing a gloomy outlook on their finances,” stated J.D. Power. “Satisfaction with their financial condition has declined to levels not seen since December 2022, even as financial health scores remain stable. In such circumstances, customers are showing greater openness to alternative loan programs, with BNPL options gaining rapid acceptance. Interestingly, though, customers are adopting BNPL even as they perceive it to be contrary to their own best interests.”

For those seeking financial assistance for significant purchases, a personal loan might be a viable option. Platforms like Credible can provide personalized interest rate offers without affecting one’s credit score.


BNPL Lenders Adopting Stricter Qualification Criteria

According to a recent report by the Wall Street Journal, BNPL providers are exhibiting signs of increased selectivity in offering zero percent interest rate loans as they grapple with profitability challenges in the current economic climate. While BNPL loans have historically been more accessible than traditional credit cards, lenders are now becoming more discerning in their approval process.

Kafene CEO and Co-Founder, Neal Desai, highlighted that the BNPL space is transitioning towards more normalized conditions, moving away from the exuberance of the past decade fueled by government liquidity injections and artificially suppressed interest rates. As the economic landscape shifts, the cost of capital rises, exerting pressure on margins, and consumers experience heightened financial stress, leading to higher losses for lenders.

In response to these evolving conditions, lenders are becoming more cautious and selective in approving borrowers, targeting those deemed least likely to default. This shift has raised the qualification bar, resulting in a smaller pool of qualified consumers.

For individuals seeking to reduce expenses and increase savings, exploring options like personal loans to consolidate high-interest debt at lower rates can be a viable strategy. Platforms like Credible offer personalized interest rates, enabling borrowers to make informed decisions to improve their financial situation.


Rapid Surge in American Credit Card Debt

Credit card debt in the United States has reached alarming levels, maintaining close to a record high of $917 billion in the first quarter of 2023, as reported by TransUnion. This represents a significant increase of nearly 20% compared to the previous year. Additionally, the average balance per consumer rose by 14.4% year-over-year to reach $5,733.

Unsecured personal loans have also experienced a substantial surge, rising by 26.3% year-over-year in the first quarter of 2023, reaching a new high of $225 billion, according to the TransUnion report. The average loan amount per borrower increased from $9,896 to $11,281 in the past year.

Andrew Boyd, Co-Founder and Managing Partner of Finty, observed a shifting trend among certain age groups, with individuals finding more value in reward credit cards compared to soon-to-be credit checked and interest-based BNPL products.

For those grappling with debt repayment, consolidation through a personal loan at a lower interest rate could be a viable solution, leading to potential savings each month. Platforms like Credible offer personalized interest rates, allowing borrowers to explore options without affecting their credit score.

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