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A surge in layoffs and rising balances could create a “perfect storm of debt” for buy-now, pay-later (BNPL) users, management consultancy cg42 said.

Consumers who use buy-now-pay-later (BNPL) for shopping are more likely to default on payments. However, many say they plan to continue using the financing option to make larger purchases, according to a recent survey.

Eighty-four percent of respondents said they used BNPL to pay for purchases they could not otherwise afford, according to a survey by management consultancy cg42. Those users are also twice as likely to miss a debt payment, the study found.

BNPL’s user behavior is of particular concern in a more challenging economic environment, according to Hugh Tallents, cg42 partner and leader of the financial services practice.

“With cuts expected to increase in New Year, many BNPL customers are now banking on receiving future salaries they may never receive,” Talents said. “When you combine that 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 an adverse financial event in the past, the New Year will bring the perfect storm. debt”.

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Unemployment is expected to increase in 2023. Fitch:

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 was 3.7%, unchanged from October. This means that the number of unemployed in the country remains around 5.6 million.

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

“The lagged impact of the Fed’s aggressive tightening, the drag on real wages from high inflation, and the effects of the recession in Europe will push the US economy into recession territory, with the unemployment rate eventually rising to 4.7%.” in 2023, and reaching a peak of 5.3% in 2024,” said Olu Sonola, head of Fitch’s US regional economy.

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Mortgage rates fall for fourth STRAIGHT WEEK.

BNPL usage to grow as traditional credit becomes more difficult

A tougher economic environment could make it harder for consumers to access credit as lenders take more risks and apply more stringent measures to reduce their credit risk, according to Talents.

“Our research shows that BNPL is overwhelmingly used by people under the age of 35, and users are 40% less affluent than non-users, meaning BNPL will only become a more attractive option, because traditional credit is becoming more difficult,” Talents said.

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

BNPL Services is facing the challenge of increasing profitability and may start charging new users, Talents said. That shift could help “neutralize users who are likely to default on their bills,” he said.

If you’re struggling with high-interest debt, you may want to consider paying it off with a lower-interest personal loan. You can visit Credible to compare loans from multiple lenders and find your personalized rate.

Have questions about your finances but don’t know who to ask? Send an email [email protected] and your question can be answered by Credible in our Money Expert column.


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