difficult to generalize
More than half of economically vulnerable consumers (classified by the Fed as having a credit score below 620, having been recently denied a loan, or being at least 30 days delinquent on a loan) typically
Consumers with strong credit and stable finances use BNPL loans to make purchases.
The New York Fed's deep dive into the financials and motivations for BNPL loans sheds light on how and why households take advantage of near-interest-free loans, given the lack of regulation in the niche sector. This could shed light on a little-known field of financing. The Fed stated in its investigation:
This study is based on consumer loans that are paid in four or fewer installments and have no payment fees. These are typically provided to shoppers at checkout. According to the study authors, BNPL plans have gained increasing attention in recent years, and are used to make online purchases of more expensive items such as furniture, as well as very small purchases such as fast food deliveries.
The Fed's research is based on data collected in October 2023 from approximately 200 BNPL loan users in a panel of 1,000 consumers, and includes regular public opinion within the Consumer Expectations Survey conducted every four months. Adding special questions to the survey.
The results could help consumers determine the utility and risk surrounding BNPL loans as the Consumer Financial Protection Bureau prepares to provide regulatory guardrails to the industry this year. So far, there has been only mild federal action against BNPL loans.
“Scenery around BNPL” [loans] The study authors say that while only about 20% of all U.S. households have taken out a BNPL loan in the past year, other data shows that many consumers are He pointed out that this indicates that he tried the loan for the first time.
“People rarely use BNPL just once,” the Fed study said. Approximately 72% of economically stable users and 89% of economically vulnerable users purchased BNPL multiple times in the past 12 months.
According to the study, financially vulnerable BNPL users are almost three times more likely to take out multiple BNPL loans than financially stable users.
“This suggests that high-frequency use may increase if this product continues to be adopted by economically vulnerable households,” the authors wrote.
Of the affluent BNPL users surveyed, around two-thirds have taken out a BNPL loan at least twice in the past year, 23% have taken out 5 or more times a year, and 14% have taken out 10 or more times. ing.
“This reveals that economically stable people are taking advantage of [households] “Although it tends to decline significantly after a few uses, there is a small group of economically stable users who use BNPL more frequently,” the study authors wrote.
After adjusting for income, economically vulnerable households make about $220 fewer BNPL purchases on average than economically stable households, and these more vulnerable users make about four more purchases per year than wealthier households. Buy more BNPL.
When asked specifically why they chose to take out a BNPL loan, economically vulnerable consumers emphasize ease of use and overall affordability.
According to the survey, wealthy households cite the benefit of not necessarily having to pay interest on BNPL loans, as well as being able to extend payments over several months.
Some financially stable users said they view BNPL loans as a way to build credit, but this is an unlikely outcome.
“Because BNPL’s lenders
The disparity in usage between poorer and wealthier households could become more significant if overall economic stress increases this year, the Fed said.
The Financial Technology Association, a Washington, D.C.-based trade group that represents some BNPL lenders, said the New York Fed study confirmed that there is demand for BNPL loans across income groups.
“As the prices of everyday goods and services continue to rise, consumers of all income levels need help to manage their finances responsibly,” FTA Chairman and CEO Penny Lee said Wednesday. “People are increasingly turning to alternative payment methods such as buy now, pay later.” press release.
According to FTA, a recent survey report found that 79% of consumers had a positive experience with BNPL loans, and 94% said they preferred the loans because the terms and services were easy to understand. Morning Consult conducted an online survey of 2,210 U.S. adults on behalf of the FTA from September 1-3, 2023.