Financial Constraints Among Buy Now, Pay Later Users

Buy now, pay later (BNPL) services have become increasingly popular in the United States over the past decade, especially among both younger and financially vulnerable consumers. Although BNPL services may help some consumers manage financial constraints by breaking down purchases into smaller installments and providing access to interest-free credit, the smaller, interest-free installments may also lead some consumers to perceive purchases as more affordable than they really are, increasing the risk of overspending, debt accumulation, and even default. Fumiko Hayashi and Aditi Routh examine the financial constraints and repayment behavior of BNPL users, using the 2023 Survey of Household Economics and Decisionmaking (SHED) to create financial constraint indicators. They find that BNPL users tend to be more financially vulnerable relative to BNPL nonusers, consistent with previous studies. Their results also suggest a high correlation between consumers who make late payments on BNPL loans and those experiencing financial vulnerability or distress, implying that some BNPL users with late payments may have overspent or overextended their debt through BNPL.