Buy now, pay later is not a boom, but a bubble, Harvard student says

Most people love the convenience of buying now, paying later.

Since the beginning coronavirus pandemicInstallment payments have exploded in popularity along with a general increase in Online Shopping.

Initially, spread the cost of buying large tickets – like Pelotonfor example – only makes sense financially, especially at 0%.

Today, four out of five U.S. consumers use BNPL on everything from clothing to cleaning supplies, according to Experian, and most shoppers say buy now, pay later could replace the method. their traditional payment method (maybe, credit).

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“It’s hard to buy anything more without being asked if you want to pay over time,” said Marshall Lux, a research fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School. are not.

Today, most consumers will see a buy now, pay later option when shopping online at retailers like Target, Walmart, and Amazon, and many vendors are introducing browser extensions as well. which you can download and apply to any online purchase. Then there are apps, which allow you to use installment payments when buy things in personjust like you use Apple Pay.

“Three years ago people were talking about Peloton bikes, now people are buying sneakers, jeans, socks,” says Lux. “When people start buying household goods on credit, that signals a problem.”

When people start buying household goods on credit, that signals a problem.

Marshall Lux

Fellow at Harvard Kennedy School

Additionally, BNPL’s rapid growth has been largely driven by younger consumers, with two-thirds of BNPL borrowers considered subprime, Lux noted, making them particularly vulnerable to economic shocks or recessions may occur.

“These are people who can’t stand being hurt,” he said.

What’s more, nearly 70% of buy now, pay later users admit to spending more than they would if they had to pay up front for everything, according to one survey from LendingTree.

In fact, 42% of consumers who make a purchase now, pay off a loan later have deferred on one of those loans, LendingTree found.

Gen Zers are more likely to miss a payment and hit BNPL for everyday purchases than big-ticket items, according to a separate page survey by poll site Piplsay.

In general, if you miss a payment, you may have to pay late fees, late interest, or other penalties, depending on the lender. (CNBC’s Selection only one full fee, APR, whether credit check be made and if the supplier reports for credit score company, in which case late payments can also lower your credit score.)

Although, “they won’t come to buy your sneakers, the reality is you can buy something and not know what happens when you default – for the average person who goes to work for a salary” , this becomes a problem,” Lux said. “I feel a bit wild West-y.”

According to Lux.

“Let’s stress-test this,” he said. “It has the potential to become a sizable bubble.”

The Consumer Financial Protection Bureau has opened an investigation into the popular buy now, pay later programs.

The financial watchdog said it was particularly interested in how these programs impact consumers’ debt accumulation, what consumer protection laws apply and how banks provides payment data collection services.

CFPB director Rohit Chopra said in a statement: “Buy now, pay later is a new version of the old layoff package, but with a faster, modern twist where consumers receive the product instantly. but also pay the debt immediately,” CFPB Director Rohit Chopra said in a statement.

The CFPB has yet to announce next steps.

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