We are fast approaching the holiday season and many shoppers relying on buy now pay later (BNPL) apps and in store promotions to purchase gifts may also be nearing a day of financial reckoning.
BNPL is offered by major retailers such as Macy’s, Bloomingdale’s, GameStop, and more. In addition a growing number of BNPL apps are popping up. As a result, use of this financing tool is expected to mushroom in the coming months.
Holiday Expectations
Americans are going to spend $221.8 billion in holiday shopping online this year, according to an Adobe Analytics forecast.
An increasing number of those transactions will be done through buy now pay later programs.
Online purchases using BNPL are projected to grow $2.5 billion this holiday season to reach $17 billion, according to Adobe. That would be a 16.9 percent increase over last year.
In addition, shopping on mobile devices is expected to account for 51 percent of all online shopping this year. If so, that will be the first time mobile purchases exceed desktop buys.
Cyber Week Impact
As usual, cyber week, the catch-all shopping period that covers Back Friday and Cyber Monday, is expected to drive billions in sales. To be exact – $37.2 billion in online purchases alone.
Cyber Monday will retain its crown as the biggest spending day of the year, according to Adobe. We are expected to spend a record $12 billion that day. Of that amount, $782 million will come from BNPL, says the forecast.
Black Friday sales are also expected to rise. Online sales then are projected to reach $9.6 billion, an increase of 5.7 percent. In addition, the day before (Thanksgiving) is expected to produce $5.6 billion in online sales. That is a jump of 5.5 percent.
In all, BNPL spending for November is anticipated to hit $9.3 billion. That would make it the largest BNPL month on record.
According to Adobe and other surveys, about one in five Americans plan to use BNPL for some or all of their holiday purchases.
Store Discounts
Many of those holiday buys are expected to be driven by large store discounts.
Adobe tracks 18 shopping categories. Its research points to discounts in most of those areas, such as:
Toys – 35 percent
Electronics – 30 percent
Clothing – 25 percent
Sporting Goods – 24 percent
Televisions – 22 percent
Furniture and Bedding – 19 percent
How BNPL Works
The BNPL model allows you to split a purchase into small payments. Most programs allow four payments spread out over two week intervals. Often plans require you to enroll in auto-pay with a debit or credit card. In addition, some plans require a down payment – usually 25 percent.
These short-term BNPL programs do not charge interest. However, longer-term BNPL plans are showing up which do charge annual interest up to 36 percent.
Even without interest payments, BNPL plans can cost you money.
How BNPL Makes Money
BNPL companies charge a fee to merchants for each purchase. Typically that ranges from two to eight percent. However, that is not where the story ends.
BNPL firms also make money by charging fees and/or interest on late payments. Those charges vary by company and can be significant.
Fueling Spending
The convenience of BNPL makes it easy to overspend.
A 2022 report from the Consumer Financial Protection Bureau (CFPB) found that BNPL loans from the five major lenders grew 970 percent from 2019 to 2021. In dollars, that is a jump from $16.8 million in 2019 to $180 million in 2021.
That same CFPB report spotted a trend by BNPL companies to target consumers with direct retail marketing.
“In the app-driven model, (BNPL) lenders’ primary role is as a marketing platform to ‘push’ customers to retailers via referral clicks,” according to the CFPB.
Impact on Your Credit
BNPL companies execute a “soft” credit check. That means, they do not use the major credit bureaus to view your credit history. Neither do they report your timely payments.
However, your credit can still be damaged if you miss BNPL payments. That could result in your account being turned over to a debt collector. In turn, the collection company might send a negative report to one or all of the credit reporting bureaus.
Managing Your Loan
BNPL loans have many drawbacks as detailed above. However, they can provide a way to temporarily stretch your budget – if managed properly.
The first step is to determine if you really need a BNPL loan. If you do not have the money to pay now – paying later may just be putting off a growing problem.
A lot of people get into trouble by taking out too many BNPL loans. One loan at a time is a good policy.
Do some research. Part of the success of BNPL companies is due to the speed and ease in which we can get these loans. If you need such a loan, shop around for the best terms. For instance, some companies allow you to change your payment due date. As a result, you would have more time to make a payment and avoid late fees.
Read More:
Caffeine May Impact Gut Health Unexpected Discovery Finds
Why Gas Prices Are Going Up – 10 Factors
Addiction Steals From Your Personal Finances and the Economy – 10 Reasons Why
Come back to what you love! Dollardig.com is the most reliable cash-back site on the web. Just sign up, click, shop, and get full cashback!