Despite BNPL’s Popularity, Consumers Are Encountering Problems

Nearly one quarter of consumers tend to spend more than they should when taking out a BNPL loan, says a new study by Bankrate.com. Overall, 24% of consumers say they overspent after getting BNPL funds. Gen Zers are the demographic most likely to feel that way, with 30% saying they overspent when using BNPL to finance a purchase, followed by Millennials (27%), Gen Zers (20%), and Baby Boomers (19%).  

One of the reasons consumers tend to feel they overspent with BNPL is that the payment option can create the “illusion” of making it easier to manage the cost of a purchase by stretching out cash flow, especially for non-essential purchases, says Ted Rossman, a senior industry analyst for Bankrate.com.

“BNPL can be a bit like a power tool, it can be useful or dangerous, depending on how it is used,” Rossman. “Consumers can use BNPL to make frivolous, discretionary purchases, such as [food deliveries] through DoorDash, as opposed to using BNPL to spread out payments for a large, planned purchase.”

Bankrate conducted the survey using an online interview administered to 2,354 adults in the United States, of whom 707 have used a BNPL service. The survey was conducted with YouGov Plc, a United Kingdom-based market-research firm.

One surprise to emerge from the research is that BNPL usage is about the same across income levels. Households with incomes of $50,000 to $79,999 were the most frequent users (36%), followed by households with incomes of $80,000 to $99,999 (34%). The remaining 31% of households using BNPL is made up of those with incomes of less than $50,000 and those with incomes of $100,000 or more.

“It is surprising the use BNPL across incomes does not vary much and shows that the conventional wisdom [that] BNPL is largely used by young people without much money or credit history may be wrong,” Rossman says. “There are a lot of higher earners not rich yet, or HENRYs, that use BNPL.”

Overall, 30% of Americans have used at least one BNPL service. Among BNPL providers favored by consumers, PayPal Pay In 4/Pay Later ranked first (15%), followed by Affirm (11%), Afterpay (9%), and Klarna (9%). BNPL loans through traditional credit card brands are less popular with consumers, the report says. Just 3% of respondents have used American Express Co.’s Plan It or JP Morgan Chase’s Chase Pay Over Time BNPL services.

While BNPL continues to grow in popularity, nearly half of users say they have encountered at least one problem when taking out a BNPL loan. In addition to overspending, other problems include missing a payment (16%), regretting a purchase (15%), difficulty making a return or obtaining a refund (14%), dissatisfaction with the purchase experience (12%), or some other problem (1%).

As BNPL continues to evolve as a payment option, it is becoming more like a credit card, with many lenders offering longer-term loans with high interest rates, Rossman says.

“BNPL was positioned as a kinder, gentler alternative to credit cards that lets consumers [make] four interest-free payments over six weeks, and that’s not the case any more,” says Rossman. “There are a lot of plans that can be stretched out over months with high interest rates where it feels as if the purchase is being financed with a credit card.”