U.S. consumers are increasingly turning to installment loans by way of buy now, pay later (BNPL) apps to help pay for everyday items like groceries.
According to the Bureau of Labor Statistics, the cost of groceries has risen by 8.4% this year, following the trend of what experts are calling the worst inflation outbreak in four decades. Therefore, it comes as no surprise that many Americans are relying on BNPL providers such as Afterpay, Klarna, and PayPal to help
bridge the gap between their paydays. Almost half of Americans have used installment loan apps, and of those, about 1 in 5 rely on them to buy groceries, according to Bloomberg.The boom of BNPL apps occurred during the pandemic, when consumers did the bulk of their shopping online. In fact, five of the main lenders in the U.S. opened up loans worth $24.2 billion in 2021 – $22 billion more than those reported in 2019, according to the Consumer Financial Protection Bureau (CFPB).
The buy now, pay later model allows for shoppers to spread out the payments for their purchases into even installments without accruing interest. The popular checkout options also serve as a substitute for high-interest credit cards. However, the convenience and accessibility of the loans can cause problems for consumers who may fall behind on payments, affecting their credit scores.
The risks are even higher for Black and Hispanic users.
According to Bloomberg, users in those demographics are more likely to already be in financial distress from other sources. A whopping 70% of Black or Hispanic BNPL users have credit card debt, and on average they have about $12,000 less in savings than those who didn’t need to seek out help from the apps in the past year. Though the risks and statistics are staggering, the industry still posits itself as the more flexible and consumer-friendly alternative to traditional credit cards. “Regardless
of what the purchase is, BNPL is a healthier and more sustainable option compared to high-cost credit cards that encourage minimum payments, keeping people in debt longer with extortionate interest,” a spokesperson for Klarna told Bloomberg.With the U.S. Department of Agriculture estimating that an average family of four must spend a minimum of $1,000 on groceries per month in order to have a nutritious diet; it seems that even the most cautious spenders will have to make adjustments.