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Beware of buy now, pay later debt

Ask Chuck your money question

Dear Chuck,

I heard “buy now, pay later” data will soon be reported to credit bureaus. I hope this is true! My daughter got into financial trouble during her first year out of college by getting sucked into these easy payment plans. How do I help her and her friends open their eyes to the dangers of this type of debt?

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Concerned Mom

Dear Concerned Mom,


Easy credit leading to financial challenges has been around for a long, long time. I grew up in the age of “layaway.” You could select what you wanted to purchase and make interest-free payments for a few weeks or months. However, the buyer was not allowed to take possession of their purchase until the final payment was made. Today, that plan has been modified to make it even more enticing and risky.

Buy now, pay later

The use of buy now, pay later (BNPL) plans is growing fast. Sometimes, it is used to cover basic necessities. Total BNPL spending last year came to $75 billion, a 14% jump from the previous year. Experts expect usage to double or even triple over the next five years.

More than one-third of U.S. adults are estimated to have used a BNPL service, where purchases are divided into several interest-free installments. With only a few questions to answer and flexible requirements, buyers are given a plan to split their payments over several weeks.

Bankrate senior industry analyst Ted Rossman says, “BNPL terms vary widely. Sometimes it’s four interest-free payments over six weeks, other times the plan can stretch on for many months or even years. And while some of those longer plans charge a low interest rate — or no interest at all — other times there is an interest rate, and it can be even higher than what a credit card would charge.”

Unfortunately, in a recent survey, 56% admit to overspending, missing payments, regretting purchases, or facing challenges getting a refund or returning items. The most common reasons people use BNPL services:

  • 50% – Want to pay in installments to spread the cash flow.
  • 37% – Low or no interest rate.
  • 33% – Knowing what they owe and how long the plan will last.
  • 27% – Easy to obtain credit.
  • 26% – Feel more responsible than using a credit card.
  • 20% – Retail promotion.
  • 20% – Recommended by friends/family.
  • 2% – Other.

Pros/Cons of BNPL plans

  • They come with fixed repayment schedules.
  • Purchases are attainable for those without access to credit cards.
  • People lose track of what they owe and spend more than they should.
  • There are late fees, deferred interest, and other penalties.
  • Few protections and regulations are in place.

Discernment and self-control

If used responsibly, BNPL can help in financing a large expense without interest charges. The key is discerning needs from wants and understanding the terms. Self-control is needed to avoid overspending and entrapment to debt. It goes without saying that couples must be transparent about their purchases so that they don’t get overwhelmed with multiple payments.

Phantom or shadow debt

BNPL has been described as phantom debt, a term some economists use to describe debt that is not centrally monitored.

A problem exists in regulating how data is given to the major credit bureaus: Equifax, Experian, and TransUnion. As a result, lenders may not know how many loans a consumer has outstanding. “It’s hard to know how much of this debt is out there,” says Ted Ross, senior industry analyst at Bankrate. “It’s this kind of shadow debt that’s hanging over people.” Tim Quinlan, senior economist at Wells Fargo, told CNBC, “Because no central repository exists for monitoring it, growth of this ‘phantom debt’ could imply total household debt levels are actually higher than traditional measures.”  

To see how they are currently reported and how it may impact credit scores, see here.

A problem of fraud

BNPL can invite synthetic identity fraud. Cecilia Seiden, VP of market strategy at TransUnion says, “This is when fraudsters use a combination of legitimate but unconnected pieces of personally identifiable information (PII) to fabricate a person or entity and use it to apply for credit with a low bar to entry, like BNPL … Once a synthetic identity is established and begins to build credit, institutions often have no idea what their level of exposure is.”

“Buy now pay never” is how some have begun to refer to these programs as they look for ways to rip off the business that extended them the loan.

Protection for customers and businesses

On May 22nd, The Consumer Financial Protection Bureau (CFPB) ruled that BNPL lenders are credit card providers and must provide consumers some protections and rights given under conventional credit cards, such as the ability to investigate disputed charges and pause payments during that time, get a refund for returned products purchased with a BNPL loan, and receive bills that disclose fees. Many lenders already conduct business in this way.

Proper reporting would help reveal or thwart fraud in either direction. In addition, responsible BNPL consumers could improve their credit score which would enable them to gain access to other credit products, even securing a mortgage.

Biblical perspective on debt

“The rich rules over the poor, and the borrower is the slave of the lender” (Proverbs 22:7 ESV).

Many are in debt today because they have not managed funds appropriately. Applying biblical financial principles to everyday life and teaching others likewise will bring much-needed attention to the growing problem of excessive debt in our nation. Training in responsible spending, contentment, and constraint is necessary for people everywhere. When we begin to acknowledge that everything belongs to God, we will gain a mindset of wise stewardship.

I hope this helps your daughter and you.

If credit card debt is holding your daughter, or anyone else you know, in bondage, a valuable and trusted resource is Christian Credit Counselors. They can help consolidate debt to get one on the road to financial freedom.

Chuck Bentley is CEO of Crown Financial Ministries, a global Christian ministry, founded by the late Larry Burkett. He is the host of a daily radio broadcast, My MoneyLife, featured on more than 1,000 Christian Music and Talk stations in the U.S., and author of his most recent book, Economic Evidence for God?. Be sure to follow Crown on Facebook.

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