Buy now pay later surges throughout pandemic, consumers’ credit takes a hit

Buy now, pay later services, were seemingly made popular at the start of the pandemic when spin class fanatics were no longer permitted to pedal alongside one another to well-curated playlists in dim, close-quartered studios. To quell their addiction to in-person fitness classes, consumers flocked to Peloton in droves, using buy now, pay later services to purchase the internet-connected indoor bikes through a set number of affordable monthly payments, in some cases starting as low as $50 per month. 

Since then, buy now, pay later services have only grown in popularity, with consumers using these tools to finance everything from furniture and home decor to apparel, electronics and travel. According to a survey conducted by Qualtrics on behalf of Credit Karma, 44% of Americans have used buy now, pay later products to acquire an item they needed, up slightly from December 2020. What’s more, 75% of those who have used BNPL services have used them at least twice, indicating most consumers were satisfied enough with their first experience to do it again.  

Buy now, pay later offers convenience, but at what cost to consumers?   

Buy now, pay later products can be a great option for those who are able to take on the debt and make regular on-time payments, but they can also have unfortunate consequences for consumers who are unable to follow through with the terms of the loan. 

According to the study, 34% of those who have used BNPL services, have fallen behind on one or more payments. Of those who admitted to having missed at least one payment, 72% said they believe their credit score declined as a result of missing the payment(s), with 31% of those saying their credit score declined significantly. 
Younger generations may be more likely to miss payments. According to the study, more than half of Gen Z and millennial respondents who have used BNPL services say they have missed at least one payment, compared to 22% of Gen X and just 10% of Boomers(+). However, not all missed payments are created equal. Of those who have used buy now, pay later services to purchase something they needed, 25% of millennials have missed one payment, while 30% of Gen Z respondents have missed two.

What’s in your cart 👀? 

Consumers are using buy now, pay later services to finance a wide range of purchases, including apparel and accessories, as well as concerts, music festivals and other luxury items. According to the study, 42% of respondents who have used the services have done so to finance home and furniture goods, followed by electronics (30%) and apparel (24%). The latter was most common among Gen Z, with 40% reporting they’ve used BNPL products to purchase apparel, including clothing and shoes. 

Here’s a breakdown of top spending categories for consumers who have used BNPL services:

Which of the following best describes what you have previously purchased using buy now, pay later products? Please select all that apply.
Home and furniture goods	42%
Electronics (headphones, speakers, vacuums)	30%
Apparel (clothing, shoes, etc.)	24%
Auto (tires, repairs, etc.)	21%
Accessories (jewelry, watches, handbags)	14%
Beauty and Health (makeup, skincare products, perfume)	12%
Fitness and gear	12%
Hotels or lodging	10%
Luxury items	10%
Travel goods (luggage, camping equipment, backpacks)	8%
Concerts or music festivals	6%
Airfare	5%

You paid how much for that? 

Of consumers who have used buy now, pay later services to purchase a product, the majority (65%) have used them to pay for products or experiences amounting to $500 or less, on average. Of those, nearly one-third (32%) have used them to finance purchases of $100 or less. Low-cost purchases were most common among Gen Z, nearly half of which have used BNPL services to pay for expenses of $100 or less. 

On the flip side, more than one-third (35%) of respondents have used buy now, pay later services to pay for items above $500. Of those, nearly 10% have used the financing tools to pay for purchases over $3,000. High-cost purchases were most common among Gen X and Boomers(+), with 11% and 17% having used the services to pay for purchases marked over $3,000, respectively. 

Here’s a breakdown of average purchase price using BNPL products by generation:

On average, how large are the purchases you’re making using buy now, pay later products?	Gen Z	Millennials	Gen X	Boomer+
$0-$30	11%	6%	8%	7%
$31-$50	19%	12%	4%	5%
$51-100	19%	17%	19%	6%
$101-$250	27%	22%	18%	9%
$251-$500	13%	18%	14%	16%
$501-$1,000	2%	10%	12%	20%
$1,001-$1,500	3%	6%	8%	11%
$1,501-$3,000	5%	5%	7%	8%
$3,000+	2%	4%	11%	17%

Convenience reigns supreme for most consumers. 

Despite the potential downsides, most respondents who have used a buy now, pay later product have used them more than once indicating consumers are satisfied with the purchase experience. This satisfaction could be driven by the ease and convenience of buy now, pay later products. According to the study,  80% of respondents who have used BNPL products say it was somewhat or very easy to make a purchase using buy now, pay later products and less than 6% of respondents say it was difficult.

“The idea of buy now, pay later programs have been around for ages. Similar to layaway programs used by previous generations, buy now, pay later services can be a great tool for people who wish to make a purchase and break up their payments into smaller, more manageable dollar amounts,” said Colleen McCreary, financial advocate at Credit Karma. “Unlike layaway plans, however, missing a payment toward BNPL loans can have a negative impact on your credit score, which can make it harder for you to borrow in the future. What’s more, BNPL services don’t reward you for exhibiting good financial behavior. For example, if you make regular on-time payments, which normally signals to a lender that you’re a good borrower, it’s unlikely it will be reported to the bureaus, which means you won’t see a positive shift in your credit score. Ultimately, there are pros and cons to every financial product. Be sure to weigh your options and read the fine print before agreeing to the terms.” 

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Methodology

On behalf of Credit Karma, Qualtrics conducted a nationally representative online survey in August 2021 of 1,044 Americans, aged 18 and above, to gauge utilization of buy now pay later products, the reasons for using these tools to finance purchases and the impacts of missing repayments of BNPL products on a person’s credit score.