The Similarities Between BNPL and Credit Cards
A significant number of users of buy now, pay later (BNPL) services have experienced missed payments—but interestingly, high-income individuals are leading the charge. This pattern suggests that many BNPL borrowers treat their loans much like credit card bills, weighing convenience against late fee risks.
According to a report by Lending Tree, 41% of respondents in the last year said they had made late payments, up from 34% the previous year. Moreover, nearly one-quarter of users have multiple active BNPL loans at any given time, with high-income earners consistently topping this category.
Hidden Risks and Revenue Streams
BNPL providers often allow a certain degree of late payments due to their profit potential from associated fees. However, for borrowers, the convenience comes with significant hidden risks. High-income individuals are not immune; many are revolving debt holders who might struggle to meet BNPL payment deadlines.
Ben Danner, Senior Analyst at Javelin Strategy & Research, explains that nearly half of credit card users carry a balance, indicating financial strain and the prioritization of other debts over BNPL loans. Any late payments or default could negate any benefits gained from using BNPL services for purchases.
Late fees are lucrative for BNPL vendors,” Danner notes. While these fees can be negligible in the short term, they add up over time and pose a significant risk to borrowers’ financial stability.”
Misunderstandings about Credit Scores
A major misconception among users is that making timely BNPL payments boosts credit scores. In reality, many BNPL loans do not report to credit bureaus, meaning on-time payments may have no impact at all. This can create a false sense of security and lead to greater financial strain in the long run.
Danner points out that while late fees on average BNPL loans are around $10, they can accumulate over time, affecting not just budgets but also credit scores. The potential for significant damage is alarming, especially considering how these fees can impact borrowers’ overall financial health.
