Buy Now, Pay Later (BNPL) allows shoppers to split the cost of their purchase into smaller installments, often with little to no interest or fees. Consumers are increasingly turning to this payment option as it is being adopted by large online retailers and traditional banks.

While BNPL still lags behind credit cards and mobile wallets, a new report from Experian says this alternative funding option is “here to stay”. Almost a fifth (18%) of consumers worldwide have used BNPL in the past six months, and 57% of respondents said BNPL could replace their traditional credit card.

Additionally, 80% of US shoppers said their main reason for using BNPL was to avoid credit card debt.

Read on to learn more about this new payment method and what consumers should know before entering into a BNPL funding agreement. And if you’re struggling to make BNPL payments or pay off high-yield credit cards, consider consolidating your debt into a personal loan. Learn more about debt consolidation at Credible.

OVER HALF OF GEN Z CONSUMERS THINK BNPL ENCOURAGES BAD SPENDING HABITS

BNPL usage is increasing but regulators are concerned about the debt burden

Buy now, pay later has grown in popularity in recent years, with usage growing about 300% annually since 2018, Bloomberg reported. And while BNPL is traditionally an online funding tool, it’s becoming more common in brick-and-mortar retail outlets and even at gas pumps.

As BNPL is increasingly adopted by consumers and retailers, banking regulators have raised concerns that it could be a debt trap for consumers who cannot afford the short-term installment arrangements.

“Unaffordable loans can provide a quick cash inflow, but over the longer term – which in BNPL’s case may be as little as a few weeks or months – unregulated fintech products can add to the debt burden of consumers who are already overwhelmed by debt,” said Mike Calhoun , President of the Center for Responsible Lending (CRL).

The Consumer Financial Protection Bureau (CFPB) is investigating this lending option, gathering information from five BNPL providers – Affirm, Afterpay, Klarna, PayPal and Zip – to determine the risks and benefits for its users.

If you’re struggling to pay off BNPL debt, you might consider consolidating it into a single monthly payment through a fixed-rate personal loan. You can use Credible’s personal loan calculator to estimate your repayment terms.

5 BENEFITS OF A GOOD CREDIT Score

30% of BNPL users cannot afford their payments

While BNPL users can benefit in the short term by splitting large purchases into an installment plan, the data suggests banking advocates may be justified in their concern. According to a recent survey, almost a third (30%) of BNPL users cannot afford their payments.

And although over-indebtedness can lead to high arrears and interest rates, another study claims that 36% of BNPL users are unaware of these consequences and that many BNPL companies do not carry out thorough credit checks.

“Too many people take out these loans without realizing the potential impact on their finances,” said Antony Stephen, CEO of Barclays Partner Finance.

Eventually, some Americans using BNPL could face negative credit score implications as larger credit bureaus like Equifax and TransUnion incorporate BNPL payment history into their underwriting process.

If you cannot afford your BNPL installments, you may consider opening a debt consolidation loan. This is a type of unsecured personal loan that you pay back in fixed monthly payments over a set period of time, usually a few years. You can browse personal loan interest rates in the table below and visit Credible to compare quotes for free without hurting your credit score.

HARD CREDIT CHECKS VS. SOFT CREDIT CHECKS: WHAT YOU SHOULD KNOW

Do you have a financial question but don’t know who to contact? Email The Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert section.