Americans relied on buy-now-pay-later more this year as inflation rose

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 double the number of Americans used BNPL services in December compared with just four months ago. A TransUnion 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 — up from just 2% in 2021.

The common concern among shoppers then and now: inflation, as a growing number of American families shift their spending habits to stretch their budgets, making them more vulnerable to potential late payments and fees.

“We’ve seen an increased usage of buy-now-pay-later services, led mostly 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 over a period of time, whether it’s two months or longer.”

Shoppers looking for early Black Friday sales checkout at a Gap store in Times Square on the Thanksgiving holiday in New York City, U.S., November 24, 2022. (Credit: Brendan McDermid, REUTERS)

While a record 196.7 million Americans shopped in stores and online during the five-day holiday shopping period from Thanksgiving Day through Cyber ​​Monday — up 17 million new shoppers, according to NRF — that wasn’t enough to boost overall retail sales in November as shoppers spent more conservatively in the face of inflation.

That could be seen in the BNPL data, too.

While purchases using BNPL jumped by 68% in the week through Nov. 27 compared with the week prior, according to Adobe Analytics, a growing number of shoppers were using BNPL to fund lower-priced goods, according to separate data.

Salesforce found that the average order value for BNPL transactions across Cyber ​​Week declined 5% — indicating shoppers financed lower-priced goods this year compared with 2021.

A lot of that could be attributed to rising consumer prices this year. For instance, more than a third of respondents to a Morning Consult holiday survey conducted in October said they 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.

A logo for the Afterpay company is seen in a store window.  (Credit: Stephen Coates, REUTERS)

A logo for the Afterpay company is seen in a store window. (Credit: Stephen Coates, REUTERS)

BNPL usage showed up in the summer, too, as parents got their kids ready for school.

TransUnion found that some 62% of shoppers used buy-now-pay-later loans to purchase books or other items needed for the classroom, while 52% used it to buy a single expensive item like a computer.

That’s after they pulled back on spending – buying cheaper or fewer items, the survey found. Again, the culprit was inflation. Over half (55%) of TransUnion respondents in the back-to-shopping poll said they were concerned about inflation.

“People are being more conservative and thinking, ‘how do I dial back spending and inflation?” Rose said.

Shoppers search for deals in Best Buy in Lone Tree, Colorado.  (Credit: Michael Ciaglo/Getty Images)

Shoppers search for deals in Best Buy in Lone Tree, Colorado. (Credit: Michael Ciaglo/Getty Images)

But BNPL is not a panacea, experts warn, even though its lure is apparent in an environment of rising prices.

Most BNPL companies allow you to pay a quarter — sometimes less — of what you owe at checkout online if you set up automatic payments for the remaining balance. There’s no interest like with credit cards and no credit check required, making it particularly appealing to those with bad credit or no credit history at all. For instance, 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. Almost 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 with other financing options such as credit cards because of a lack of regulatory oversight on nonbank BNPL providers, according to the CFPB.

Still, those concerns haven’t been enough to deter shoppers from spending plans this holiday season, Schulz said, it just means buyers are being “more careful.”

“They just have to make sure that they’ll be able to pay those transactions back,” Schulz said, “and not overextend their budgets.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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