Americans have relied on buy-now-pay-later more this year as inflation has picked up

With inflation crushing budgets in 2022, Americans have turned to buy-now-pay-later financing for the biggest shopping seasons of the year.

A survey by Ally Bank showed that twice as many Americans used BNPL services in December compared to just four months ago. A TransUnion survey earlier this year found that 37% of Americans rely on BNPL for the year’s other big shopping event — back-to-school shopping — up from just 2% in 2021.

A common concern among shoppers then and now: inflation, as more and more American families change their spending habits to stretch their budgets, leaving them more vulnerable to potential late payments and fees.

“We’ve seen increased use of buy-now-pay-later services, led mostly by millennials,” Mark Rose, TransUnion’s senior director of retail, told Yahoo Money. “You see consumers using this type of payment service as a way to address the inflationary environment to defer those payments over a period of time, whether it’s two months or longer.”

Shoppers look for an early payment for the Black Friday sales at the Gap store in Times Square on the Thanksgiving holiday in New York City, US, November 24, 2022. (Credit: Brendan McDermid, REUTERS)

While 196.7 million Americans shopped in-store and online during the five-day shopping period from Thanksgiving Day through Cyber ​​Monday — an increase of 17 million new shoppers, according to the NRF — that wasn’t enough to boost overall retail sales in November as more conservative shoppers faced off. inflation.

This can be seen in the BNPL data as well.

While purchases using BNPL jumped 68% in the week to November 27 compared to the previous week, according to Adobe Analytics, an increasing number of shoppers were using BNPL to finance low-priced goods, according to separate data.

Salesforce found that the average order value of BNPL transactions across Cyber ​​Week fell by 5% — indicating that shoppers funded lower-priced items this year compared to 2021.

Much of that can be attributed to higher consumer prices this year. For example, more than a third of respondents to a Morning Consult vacation survey in October said they planned to spend less than last year.

“People are really doing everything they can to stretch their budgets,” Matt Schulz, senior credit analyst at LendingTree, told Yahoo Money.

The Afterpay logo appears in the shop window.  (Credit: Stephen Coates, Reuters)

The Afterpay logo appears in the shop window. (Credit: Stephen Coates, Reuters)

The use of BNPL has come up in the summer, too, as parents prepare their children for school.

TransUnion found that about 62% of shoppers have used buy-now-pay-later credits to purchase books or other items needed for the semester, while 52% have used them to purchase a single expensive item such as a computer.

This is after they cut back on spending – buying cheaper or less goods, the survey found. 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 becoming more conservative and thinking, ‘How do I connect to spending and inflation?'” Rose said.

Shoppers look for bargains at Best Buy in Lone Tree, Colorado.  (Photo credit: Michael Ciaglo/Getty Images)

Shoppers look for bargains at Best Buy in Lone Tree, Colorado. (Photo credit: Michael Ciaglo/Getty Images)

But experts warn that BNPL is not a panacea, although its temptation is evident in an environment of rising prices.

Most BNPL companies allow you to pay a quarter — and sometimes less — of what you owe when paying online if you set up automatic payments for the remaining balance. There is no interest like credit cards and no credit check is required, which makes them especially attractive to those with bad credit or no credit history at all. For example, 73% of applicants were approved for 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 miss 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 non-bank BNPL service providers, according to the CFPB.

However, Schulz said those concerns weren’t enough to deter shoppers from spending plans this holiday season, it just means that buyers are becoming “more careful.”

“They just have to make sure they’re going to be able to pay off those transactions, and not stretch their budgets,” Schulz said.

Gabriela is a personal financial correspondent at Yahoo Money. Follow her on Twitter @employee.

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