Americans have become more confident in buying now and paying later this year as inflation has risen
As inflation crushed budgets in 2022, Americans turned to buy-now-pay-later financing for the biggest shopping seasons of the year.
An Ally Bank survey showed that twice as many Americans used BNPL’s services in December compared to just four months ago. A transunion A survey earlier this year found that 37% of Americans leaned on BNPL for the other big shopping event of the year, back-to-school shopping, compared to just 2% in 2021.
The common concern among shoppers then and now: inflation, as a growing number of American families change their spending habits to stretch their budgets, making them more vulnerable to potential late payments and fees.
“We’ve seen an increase in the use of buy-now-pay-later services, led primarily by millennials,” Mark Rose, senior director of TransUnion’s retail business, told Yahoo Money. “You’re seeing consumers use that type of payment service as a way to address the inflationary environment to defer those payments for a period of time, whether it’s two months or more.”
While a record 196.7 million Americans shopped in stores and online during the five-day holiday shopping period from Thanksgiving through Cyber Monday, an increase 17 million new buyersaccording to NRF, that wasn’t enough to boost overall retail sales in November as shoppers spent more conservatively against inflation.
That can also be seen in the BNPL data.
While BNPL purchases were up 68% in the week to November 27 compared to the previous week, according to adobe analyticsa growing number of buyers were using BNPL to finance lower-priced products, according to separate data.
Sales force found that the average order value for BNPL transactions at Cyber Week decreased by 5%, indicating that buyers financed lower-priced products this year compared to 2021.
Much of that could be attributed to rising consumer prices this year. For example, more than a third of those who responded to a morning consultation Holiday survey conducted in October said he planned to spend less than last year.
“People are really doing everything they can to stretch their budgets,” Matt Schulz, chief credit analyst at LendingTree, told Yahoo Money.
The use of BNPL also appeared in the summer, when parents prepared their children for school.
TransUnion found that about 62% of shoppers used buy-now-pay-later loans to buy books or other necessary classroom items, while 52% used it to buy a single expensive item like a computer.
That was after they cut spending, buying fewer or cheaper items, the survey found. Once again, the culprit was inflation. More than half (55%) of TransUnion respondents to the return to shopping survey said they were concerned about inflation.
“People are being more conservative and thinking, ‘How can I reduce spending and reduce inflation?’ said pink.
But BNPL is not a panacea, experts warn, although its appeal is evident in an environment of rising prices.
Most BNPL companies allow you to pay a quarter, sometimes less, of what you owe when paying online if you set up automatic payments for the remaining balance. There is no interest like with credit cards and no credit check is required, making it particularly attractive to those with bad credit or no credit history. For example, 73% of applicants were approved for the BNPL credit in 2021, up from 69% in 2020, according to the Consumer Financial Protection Bureau (CFPB).
But this financing can hurt your credit if you don’t make the payments. Late payments can also mean fees. Nearly 1 in 9 BNPL borrowers were charged at least one late fee in 2021, up from 1 in 13 in 2020, according to the CFPB.
Consumers also have fewer protections compared to other financing options, such as credit cards, due to a lack of regulatory oversight of BNPL’s non-bank providers, according to the CFPB.
Still, those concerns haven’t been enough to deter shoppers from spending on plans this holiday season, Schulz said, it just means shoppers are being “more careful.”
“They just have to make sure that they will be able to pay for those transactions,” Schulz said, “and not stretch their budgets too far.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
Click here for the latest economic news and economic indicators to help you in your investment decisions.
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app to Apple either Android
Follow Yahoo Finance on Twitter, Facebook, instagram, flip board, LinkedInY Youtube