How consumers are using “buy now, pay later” apps to pay for food, gas and other basics


About two months ago, Israel Conerly, a part-time grocer in Flint, Michigan, was in the Walmart line, staring at a $400 bill. Conerly, who uses the pronouns they/them, had recently lost his full-time job as a recruiter. And with much less money coming in, $400 was a lot to handle all at once. So Conerly paid his bill with Klarna, a buy-now-pay-later app that split Walmart fees into four payments, paid every two weeks.

“It definitely helps me a lot with the bills instead of taking it all out all at once, they said. “I don’t need to use my credit card. I would rather not be indebted to people.

When Conerly, 24, started using Klarna last year, it was mainly for extras like concert tickets, plane flights and pricey Uber rides. But as prices have risen and their income has fallen, Conerly is increasingly turning to buy now, pay later apps to cover necessities like food.

“What we’re seeing in our data is that people are probably having a harder time making purchases than they did in the past,” said Colleen McCreary, consumer finance attorney for Credit Karma, a finance company personal.

A survey conducted by the company last month found that 61% of consumers nationwide have used buy-it-now, pay-later apps for groceries, household supplies and other basics, compared to 44% in September. Half of these shoppers also said they used these services more often in the past six months, with 89% of users paying for one to three purchases at a time.

The popularity of buy now, pay later apps, including Affirm, Afterpay and Klarna, were on the rise before the pandemic. But with the boom in online shopping over the past two years, the number of plans has skyrocketed and several thousand products have become eligible, from a $5,000 sofa to a $50 gas tank. In December alone, downloads of the top four apps topped 3 million, a 20% increase from the same month in 2020, according to research from Bank of America.

Yet as more shoppers turn to the services to manage their day-to-day spending, personal finance experts and consumer advocates are raising concerns that buy now, pay later could usher in a new era of credit. uncontrolled.

“We’re certainly seeing that with record inflation, people have to use that to pay their bills and get by, which is a bit of a concern,” McCreary said.

Ashley Osterman, a customer service worker in Minneapolis, started using buy now, pay later apps during the pandemic for extras like gardening tools and soil to spruce up her lawn. But as the prices of food and other basics soared, she also used them to purchase products like toilet paper and paper towels in bulk at outlet stores including Costco and Sam’s Club.

“I just wanted to stretch out the payments to feel a little more comfortable financially,” she said.

Osterman, 35, works as a subcontractor and cannot always predict how many hours she will work per week or per month. She also has a young daughter. She said using a payment app has also allowed her to manage her expenses between jobs and still afford the special things.

“I still wish I could go out and do things or do surprise activities with my daughter, even for myself, and just take a break or do something different,” she said. “Just having that option there makes a big difference.”

A customer fills up at a Chevron gas station in Las Vegas.Joe Buglewicz/Bloomberg via Getty Images

It is an increasingly easy option to exercise. Unlike credit cards, buy-it-now, pay-later plans don’t require rigorous credit checks to qualify, which would be recorded on a credit report. A few of the plans, including Affirm, which has 7 million users, charge interest, but the majority charge fees. And they can add up if you’re late paying. Klarna, for example, charges a late fee of $7 or at most 25% of the balance if it cannot collect payment within two attempts from a linked bank or checking account, which could also result in high fees from the bank for insufficient funds.

Afterpay charges similar late fees, and “if consumers have repayment issues, we’ll suspend their ability to use the service until they can repay that debt so they don’t go into debt in perpetuity.” said Zahir Khoja, the company’s general manager of North American operations. “So it’s very different from traditional credit, which would like you to pay $10 a month for the rest of your life.”

Buy now, pay later plans are also different from traditional credit cards in that most don’t report to credit agencies, which means regular payment records won’t contribute to better credit scores.

Industry experts attribute the exponential growth of buy now, pay later apps to a generation of young consumers who witnessed or experienced firsthand the Great Recession, when millions lost their homes and jobs. in the midst of crushing debt.

Early buy now, pay later shoppers were typically high-income earners who used cashback options to cover major fashion, beauty or travel purchases, Credit Karma’s McCreary said. But in recent years, the income range of shoppers has widened, she said. “It’s increasingly replacing people who don’t have other options,” she said. “They just grab any option they can get at checkout to get what they need.”

As inflation rises, options multiply. Last year, Klarna began accepting payments for gas purchased from Chevron. Sezzle is testing reimbursement options with New Jersey-based grocery chain Wakefern, which owns ShopRite and Fairway, and with California Pet Pharmacy. Afterpay says it will soon accept payment for purchases at select grocery stores.

“Buy now, pay later products are really marketed as low risk and low cost, but they can easily become unaffordable,” said Nadine Chabrier, senior policy adviser at the Center for Responsible Lending, which is part of several consumer groups claiming that such loans amount to debt that should be regulated in the same way as credit cards.

The Center for Responsible Lending argued last month in a letter to the Consumer Financial Protection Bureau that buy now, pay later apps should meet the “minimum standards” required for credit cards. In nearly all states, applications are not required to examine a consumer’s credit history or consider their ability to repay debt, Chabrier said. Plans also don’t need to clearly disclose fees or charges, or offer dispute resolution.

The law prohibits plans from engaging in unfair, deceptive and abusive lending practices. But because they typically offer loans that must be paid in less than five installments, they are not subject to the Truth in Lending Act, according to a March letter submitted to the Consumer Financial Protection Bureau by nearly two dozen of attorneys general.

Michael Linford, Affirm’s chief financial officer, said the company was an exception. “We have long asserted that our transactions are loans, and we show truth-in-lending information,” he said at an investor meeting last month. “We think it’s a good thing for the industry and for regulators to ask people to actually underwrite transactions that help prevent consumers from being overextended.”

For Israel Conerly, that’s not really a concern right now. They said buy now, pay later has become a regular way for them to budget their expenses. They often use Klarna for shopping and plan to reduce gas expenses, as well as future vacation costs.

“It’s, like, my money, anyway,” they said. “I guess I’ll splurge on vacation and come back and deal with the consequences later.”

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