Debit or credit? In this economy?<\/p>\n
Cash-poor and maxed-out consumers are increasingly turning to trendy \u201cbuy now, pay later\u201d microloan products to afford everyday necessities \u2014\u00a0as inflation and the cost of living rise faster<\/a> than salaries and bank balances.<\/p>\n A report from Lending Tree<\/a> found that 29% of users of popular BNPL brands like Klarna and Affirm use the services to purchase ever-pricier groceries and other essentials on credit \u2014 with 54% saying they wouldn\u2019t be able to make ends meet without the loans. The usage numbers represent a 25% jump from last year \u2014\u00a0and over double just two years ago.<\/p>\n Additional research<\/a> conducted by the Federal Reserve shows that one in five Americans used BNPL to pay for food from major chains like Walmart or food delivery on apps like DoorDash during the last year alone.<\/p>\n Shoppers are now using buy now, pay later services like Klarna and Block to afford essentials like groceries. tanaonte \u2013 stock.adobe.com<\/p>\n Groceries<\/a> are now third on Lending Tree\u2019s list of items most commonly purchased with BNPL, behind clothing and electronics \u2014\u00a0which are typically bought using a \u201cpay in four\u201d structure, where the creditor covers the cost of the purchase. The consumer then pays off the debt over a period of weeks or months, often interest free.<\/p>\n The trouble with that seemingly useful tool, experts say, is that when shoppers rely on this new way to pay too heavily, they can become quickly overwhelmed \u2014\u00a0an issue that\u2019s becoming all too real for many<\/a>, according to multiple reports of rising default rates.<\/p>\n Ashley Morgan, a debt and bankruptcy lawyer in Northern Virginia, worries about the way BNPL has become normalized \u2014\u00a0without being widely understood for what it is.<\/p>\n \u201cBuy Now, Pay Later has become so common<\/a> that many consumers don\u2019t really think of it as debt anymore,\u201d Morgan said. \u201cA $200 purchase may feel expensive, but four payments of $50 somehow feels affordable.\u201d<\/p>\n The problem arises when shoppers can\u2019t stop using it, she explained \u2014 a move called loan stacking where consumers can\u2019t resist the urge to keep using the now ubiquitous services.<\/p>\n Buy now, pay later is also being used for gas as costs continue to increase. Aleksandr \u2013 stock.adobe.com<\/p>\n One in four BNPL users have had three or more active BNPL loans at one time, and 68% said that the loans wind up enabling them to overspend, according to Lending Tree.<\/p>\n \u201cSuddenly several hundred dollars from your next paycheck is already committed before you even get paid,\u201d Morgan said. \u201cIf you need BNPL to regularly make ends meet, the problem \u2026 isn\u2019t the payment plan; the underlying budget no longer works.\u201d<\/p>\n There\u2019s a reason why BNPL is increasingly being used on day-to-day needs<\/a>, said Matt Schultz, chief consumer finance analyst at LendingTree \u2014\u00a0it\u2019s easy. <\/p>\n