Buy Now, Pay Later Keeps People Spending—Without Credit Agencies Knowing

livemint.com:

credit cards low—and the credit agencies in the dark. “Afterpay doesn’t report to Equifax," Rodriguez, 31, said. “That was very appealing to me." Consumers are shifting more of their spending to so-called buy now, pay later lenders, a trend that is only accelerating as high interest rates dent budgets and pandemic savings dry up.

That is sounding alarms at consumer-advocacy groups that say companies like Afterpay, Affirm and Klarna provide fewer protections than credit cards and encourage shoppers to take on more debt than they can afford. A quarter of all American adult consumers have used buy now, pay later loans, according to LexisNexis Risk Solutions. Over Black Friday and Cyber Week, such payment plans accounted for 7.2% of all online sales, a 25% jump from last year, Adobe found.

(They were also a big factor in the declining use of store credit cards.) Buy now, pay-later firmscan extend loans as large as $25,000, offering annual interest rates ranging from 0% to 36%. 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.In comparison, the average annual interest rate on credit cards is 21.19%, according to the Federal Reserve.

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. Paden Brown, a truck driver from Texas, uses Affirm to buy groceries and household essentials on slow driving weeks