‘Buy Now, Pay Later’: A New Wave of Consumer Debt

The Daily

This episode of The Daily explores the rapid rise of 'buy now, pay later' (BNPL) loans in the United States, examining how these short-term

Key takeaways

• BNPL loans are rapidly expanding beyond online shopping into everyday essentials like rent, utilities, and groceries.
• The model appeals to people who have maxed out credit cards or lack access to traditional credit, often leading to financial strain.

Main topics

• Rise of buy now, pay later loans in the U.S.
• Financial vulnerability and debt cycles among low-income consumers

Notable quotes

"You can click a button and say, OK, I'm going to do a six-week loan. And I will every two weeks pay a third of this."

"They're moving into the physical world... they've sort of morphed from this really quick, easy online checkout thing to being a more generally available and broad-based form of credit for your everyday life."

Conclusion

While 'buy now, pay later' loans offer convenience and accessibility, their

Transcript preview

Speaker 6 (0:00) Hey, I'm Tracy Mumford. There is a lot happening right now. The Headlines podcast from The New York Times will catch you up on the latest in 10 minutes or less. We'll take you inside breaking news and big investigations from The Times newsroom. Plus, bring you the stories that make you go, huh, whoa, I didn't know that. Listen to our show, The Headlines, every weekday morning, wherever you get your podcasts. From Speaker 5 (0:31) The New York Times, I'm Natalie Ketro-F. This is The Daily. Speaker 5 (0:41) As Americans struggle with rising costs just about everywhere, they're increasingly turning to a new form of credit, buy-now-pay-later loans. Those loans have exploded since the pandemic, in part because they're easier to get and often cheaper than credit cards. And now, people are relying on them for everything from groceries to rent. Speaker 5 (1:10) Today, my colleague Stacey Cowley explains the draw and the hidden risks of buy now, pay later loans and what their rise says about the state of the American consumer. It's Tuesday, September 8th. Speaker 5 (1:36) Stacey, welcome back to the show. I love having Speaker 4 (1:39) you here. Speaker 5 (1:40) Thanks Speaker 4 (1:41) for having me back to talk about debt again. Speaker 5 (1:43) Yes, the debt that we are here to talk about are these buy now, pay later loans. And I want to start by asking you to explain at a really high level what these loans are and why they've become so popular. Speaker 4 (1:56) So these are very short term installment loans that you can use when you're purchasing something at a retail checkout or online or just in your daily shopping needs. And they are typically very quick and easy to get. You can usually get approved for one within minutes. And they let you buy something and space out your payment for it over time. So let's say you're going to buy a new pair of shoes. You can click a button and say, OK, I'm going to do a six-week loan. And I will every two weeks pay a third of this. And I will have it paid off in six weeks rather than paying for all of it up front right now. You can also download an app. When I was reporting this story, I went and downloaded some. I signed up with a firm. Five minutes later, I had a $6,000 credit line and a whole list of merchants I could go spend it at. Speaker 5 (2:38) Right. I have seen these in my online shopping being offered to me. They seem really easy, straightforward. You just click a thing and there you are. You have credit. Speaker 4 (2:51) And that's by design. They're intended to be really fast, really easy to feel kind of transparent. You can see the terms, you can click, boom, off you go. So that is the intention to make these really easy to obtain. And what's been happening over the last few years and starting to accelerate is they're moving into the physical world. A lot of these vendors now offer payment cards where you could use it at a checkout, tap and pay and go. They are starting to offer loans for other sorts of more recurring expenses in people's lives. So they've sort of morphed from this really quick, easy online checkout thing to being a more generally available and broad-based form of credit for your everyday life. And we know that roughly half of Americans have used a loan like this at some point in the last few years. And around 15 to 25 percent of Americans are using them really regularly. And Speaker 5 (3:38) why does that matter? so many people are Speaker 4 (3:42) turning to these loans. Certainly people have always used, you know, credit cards and things like that for consumer purchases. So the idea that you're having to borrow to finance your daily needs, that's not new. Right. What's drawing attention here with this is both how easy and frictionless these are to obtain. And also that the usage patterns tend to be most heavily used by people who are really on the financial margins. These are often people who have maxed out their credit cards, who don't qualify for credit cards. People are struggling to keep up with their bills and their debts. So that's always a concern when you see people borrowing things that they may not be able to repay. About half the people who use buy now, pay later loans say they couldn't make the purchase without them. The other thing that's drawing attention is just how quickly these are growing. They're growing by about double-digit growth rates every year. Last year, Americans spent about $160 billion through these loans, which is about twice what they'd spent two years earlier. Okay, Speaker 5 (4:37) so really rapid growth in a form of credit that is going to people who may not be qualifying for other types of loans or may have maxed out their credit cards. How did we get to this point where these loans have become so ubiquitous? You can't really check out of any online store without being offered them. Speaker 4 (4:55) So these loans really started about 15 or so years ago in Europe and Australia. That's where they kind of started to take off. We saw them move into the United States, you know, a decade or so ago. But the pandemic was really the moment where they skyrocket. Speaker 4 (5:11) So Speaker 3 (5:11) basically Speaker 4 (5:12) what happened there is you had a lot of people sitting at home doing a lot of online shopping. There was real consumer demand. And these became a very easy way for merchants to put them at the checkout counter on their online websites and say, hey, you can quickly get credit and finance this purchase. Speaker 5 (5:28) Can you just explain that? I know the pandemic was an economically difficult period for a lot of people, but. The U.S. government was also working to keep people afloat with these pandemic checks. And a lot of people did have cash on hand. So why were they turning Speaker 4 (5:42) to these loans? Right. It was a moment when people were sort of unusually flush compared to how they usually are in America. What was appealing about these loans is they sort of facilitated impulse purchases. And sometimes they were used by people who just. wanted to use them for convenience. If you're going to go buy a couch for your house in the pandemic and you have the option of stretching the payment out for a few weeks or months, sure, why not? Especially when they started, those retail merchant loans, they often came with no fee. The merchant was paying the costs. Can also kind of entice you to buy something that might be a little more of a splurge.