BNPL users are twice as likely to miss a payment: survey

Management consulting firm cg42 says an increase in layoffs and mounting balances could create a “perfect storm of debt” for buy now, pay later (BNPL).

Consumers who use Buy Now, Pay Later (BNPL) for purchases are more likely to default. However, most say they plan to continue using the financing option to make larger purchases, a recent survey reported.

Eighty-four percent of respondents said they’ve used BNPL to pay for purchases they wouldn’t be able to afford otherwise, according to a survey by management consulting firm cg42. The study said that these users are also twice as likely to default on debt payments.

The behavior of BNPL users is of particular concern in a more challenging economic environment, according to Hugh Tallents, partner and leading financial services practice at cg42.

“With more layoffs expected in the new year, many BNPL users are now spending banking on receiving future salaries that they may never get,” Talents said. “When you combine this reality with the fact that BNPL users have on average 1.5 times more debt products than non-users and are more likely to have had a negative financial event in the past, the new year will bring a perfect debt storm.”

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High Unemployment Rate Expected in 2023: Fitch Ratings

The economy added 263,000 jobs in November, according to the latest jobs report from the Bureau of Labor Statistics (BLS) and the unemployment rate held at 3.7%, unchanged from October. This means that the number of unemployed people in the country is still around 5.6 million.

However, Fitch Ratings’ 2023 unemployment forecast paints a less optimistic picture. Fitch said labor demand is expected to decline significantly next year “as Fed tightening weighs on economic activity.”

“The delayed impact of aggressive Fed tightening, the negative impact on real wages from rising inflation, and the spillover effects of deflation in Europe will push the US economy into recession territory next year — with the unemployment rate eventually rising to 4.7% in 2023,” it reports. peaking at 5.3% in 2024, said Olu Sonola, Fitch’s head of US regional economics.

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Using BNPL to grow as traditional credit becomes more difficult to obtain

A more challenging economic environment can make it more difficult for consumers to access credit because lenders are more risk averse and impose more stringent measures to reduce credit risk, according to talents.

“Our research shows that people under the age of 35 use BNPL significantly, and users are 40% less affluent than non-users, which means that BNPL will only become a more attractive option as traditional credit becomes more difficult to obtain,” Talents said.

BNPL providers partner with retailers to allow shoppers the ability to split the cost of their online purchases into multiple installments at checkout. Part of the appeal is that Payment installments, which usually begins within a few weeks of purchase, interest-free. However, missed payments can result in late fees and other penalties.

Talents said BNPL services are facing the challenge of increasing profitability and could start charging new user fees. He said the shift could help “weed out users who are most likely to default on their payments.”

If you are suffering from high-interest debt, you can consider paying it off with a personal loan at a lower interest rate. You can visit Credible to compare loans from several lenders and find your rate.

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