‘Buy Now, Pay Later’: A New Wave of Consumer Debt

SPEAKER_1 (0:00)

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Natalie Kitroeff (0:16)

From The New York Times, I'm Natalie Kitroeff. This is The Daily.

As Americans struggle with rising costs just about everywhere, they're increasingly turning to a new form of credit, buy now, pay later loans. Those loans have exploded since the pandemic, in part because they're easier to get and often cheaper than credit cards. And now, people are relying on them for everything from groceries to rent. Today, my colleague Stacey Cowley explains the draw and the hidden risks of buy now, pay later loans and what their rise says about the state of the American consumer. It's Tuesday, September 8th.

Stacey, welcome back to the show. I love having you here.

Stacy Cowley (1:25)

Thanks for having me back to talk about debt again.

Natalie Kitroeff (1:28)

Yes. The debt that we are here to talk about are these buy now, pay later loans. And I want to start by asking you to explain at a really high level, what these loans are and why they've become so popular.

Stacy Cowley (1:41)

So these are very short-term installment loans that you can use when you're purchasing something at a retail checkout or online or just in your daily shopping needs. And they are typically very quick and easy to get. You can usually get approved for one within minutes. And they let you buy something and space out your payment for it over time. So let's say you're going to buy a new pair of shoes. You can click a button and say, okay, I'm going to do a six-week loan and I will every two weeks pay a third of this and I will have it paid off in six weeks rather than paying for all of it upfront right now.

You can also download an app. When I was reporting this story, I went and downloaded some. I signed up with a firm. Five minutes later, I had a $6,000 credit line and a whole list of merchants I could go spend it at. Right.

Natalie Kitroeff (2:23)

I have seen these in my online shopping being offered to me.

They seem really easy, straightforward. You just click a thing and there you are, you have credit.

Stacy Cowley (2:36)

That's by design. They're intended to be really fast, really easy to feel transparent. You can see the terms, you can click, boom, off you go. That is the intention to make these really easy to obtain. What's been happening over the last few years and starting to accelerate is they're moving into the physical world. A lot of these vendors now offer payment cards where you could use it at a checkout, tap and pay and go. They are starting to offer loans for other more recurring expenses in people's lives. They've morphed from this really quick, easy online checkout thing to being more generally available and broad-based form of credit for your everyday life.

We know that roughly half of Americans have used a loan like this at some point in the last few years and around 15-25 percent of Americans are using them really regularly.

Natalie Kitroeff (3:24)

Why does that matter that so many people are turning to these loans?

Stacy Cowley (3:30)

Certainly, people have always used credit cards and things like that for consumer purchases. So the idea that you're having to borrow to finance your daily needs, that's not new. What's drawing attention here with this is both how easy and frictionless these are to obtain and also that the usage patterns tend to be most heavily used by people who are really on the financial margins. These are often people who have maxed out their credit cards, who don't qualify for credit cards. People are struggling to keep up with their bills and their debts. So that's always a concern when you see people borrowing things that they may not be able to repay. About half the people who use buy now pay later for loans, say they couldn't make the purchase without them.

The other thing that's drawing attention is just how quickly these are growing. They're growing by about double-digit growth rates every year. Last year, Americans spent about $160 billion through these loans, which is about twice what they'd spent two years earlier.

Natalie Kitroeff (4:22)

Okay, so really rapid growth in a form of credit that is going to people who may not be qualifying for other types of loans or may have maxed out their credit cards. How did we get to this point where these loans have become so ubiquitous, where you can't really check out of any online store without being offered them?