BNPL Is Everywhere—But at What Cost?

This week’s insight looks at the so-called buy now, pay later (BNPL) trend.

Did you know that the back-to-school stretch is the second-biggest shopping season of the year? That’s the word from the National Retail Federation. As you scoff at the very mention of back-to-school with Fourth of July fireworks yet to light up the sky, an emerging consumer trend is being leaned on more heavily by retailers big and small.

“Buy now, pay later” is a rapidly growing payment method that allows consumers to split purchases into interest-free installments, but a new requirement poses risks to the economy’s most vulnerable consumers, many of whom will begin loading up on school supplies soon.

According to The Wall Street Journal, credit scores will start to take into account the hundreds of millions of microloans tied to the “pay later” option at checkout. As a refresher, your credit score ranges from 300 to 850, and it’s based on a handful of factors—primarily payment history and the amount of available credit you routinely use. Most credit card issuers now offer free glimpses at your estimated score, though the actual FICO score is more hidden. Also, you can obtain a free credit report once per year from each of the three big credit bureaus (Experian, Equifax, and TransUnion).

As for BNPL, it’s a growing option for shoppers, and a perceived necessity for some. Estimated to be a $108 billion market this year, growing at a 21% clip annually, there’s a chance that lower-income households may fall further behind if they rely heavily on “pay-in-four” ahead of the fall semester.

BNPL on its own won’t send an individual spiraling into a debt downfall, but it’s the habit of buying what you can’t afford that leads to financial dependence over time. Concerning me, young people and families are most likely to fall prey to BNPL’s marketing scheme. Gen Z and millennials are the most frequent users, drawn by the ease of use and the ability to avoid traditional credit card debt. But small borrowings can snowball into significant debt.

For everyone, going back to the fundamentals of saving is key. Be sure to have access to cash, whether it’s via an emergency fund, home equity, or a line of credit on your brokerage account. Young folks without significant assets should avoid high-interest-rate debt, like BNPL, and instead be prudent savers. As your savings bucket swells, you can then take on higher-return-potential endeavors, including starting a business (a personal favorite!).