WASHINGTON— The Consumer Financial Protection Bureau (CFPB) has published a new report analyzing the financial profiles of Buy Now, Pay Later borrowers.
It noted in releasing the report that it cannot distinguish whether Buy Now, Pay Later usage leads to more delinquencies on other obligations or whether consumers who are already in distress are more likely to use Buy Now, Pay Later loans to pay off higher-interest debt.
“While many Buy Now, Pay Later borrowers use the product without noticeable indications of financial stress, the report finds that Buy Now, Pay Later borrowers are more likely to be active users of other types of credit products like credit cards, personal loans, and student loans,” the CFPB said. “They are also more likely to exhibit measures of financial distress than non-users. For example, Buy Now, Pay Later borrowers are more likely to be highly indebted or have revolving balances or delinquencies on their credit cards compared to consumers who do not use Buy Now, Pay Later products. Buy Now, Pay Later borrowers are also more likely to use high-interest financial services such as payday loans, pawn loans, and bank account overdrafts.”
The Bureau said the report follows previous CFPB research on the Buy Now, Pay Later market.
What Report Reveals
According to the CFPB, the new report shows that it is more likely that a Buy Now, Pay Later borrower actively uses other credit products. Borrowers often exhibit higher measures of financial distress compared to non-borrowers.
The Bureau said some examples include having higher credit card debt and utilization rates, a higher likelihood of having an overdraft, a higher likelihood of revolving on at least one credit card, and higher utilization rates of alternative financial services like payday loans that charge high interest rates.
“However, the report finds that many of these differences pre-date Buy Now, Pay Later use and highlights the need for further research into whether the products have any causal impact on consumer indebtedness,” the report added.
The Findings
Overall, 17% of consumers with a credit record used a Buy Now, Pay Later loan in the year prior to the survey.
According to the CFPB, other findings from today’s report include:
- Nearly 95% of Buy Now, Pay Later borrowers had at least one credit record in another account, compared to 86% of non-borrowers.
- Buy Now, Pay Later borrowers had significantly higher usage in several other loan products when compared to non-borrowers, including retail accounts (62% compared to 44%), personal loans (32% compared to 13%), and student loans (33% compared to 17%).
- Black, Hispanic, and female consumers are more likely than average to use Buy Now, Pay Later products, along with consumers with income between $20,001-$50,000.
- Among consumers who have open credit or retail cards, personal loans, auto loans, student loans or mortgages, Buy Now, Pay Later borrowers were more than twice as likely to be delinquent on at least one of those products by 30 days or longer.
- Eighteen percent of Buy Now, Pay Later borrowers had at least one reported delinquency in another account, compared to 7% of non-borrowers. Delinquency rates were substantially higher for credit (9%) and retail cards (8%) among Buy Now, Pay Later borrowers compared to non-borrowers (3% and 1% respectively).
Lower Credit Scores
The Bureau said its analysis found Buy Now, Pay Later borrowers also typically had lower credit scores than non-borrowers. Non-borrowers had an average credit score classified as near-prime (670-739), while borrowers had an average score in the sub-prime category (580-669), the CFPB said, adding that “lower credit scores lead to higher interest rates on traditional credit products, which makes Buy Now, Pay Later loans with no interest an attractive alternative that many borrowers seek.”
Additional Info
The CFPB said the data for the report, Consumer Use of Buy Now, Pay Later, comes from the 2022 Making Ends Meet survey, and the CFPB’s Consumer Credit Panel, which contains an anonymized sample of credit bureau records.
For more info: Consumer Use of Buy Now, Pay Later.
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