Holiday spending online in 2023 hit highs. Credit card debt has reached a record high as well, and there is a new debt in town as many consumers use the buy now pay later option to purchase holiday gifts and more. There was a 14 percent increase in spending in 2023 compared to the earlier year.
The buy now pay later option offered by several finance firms such as Klarna, PayPal, Affirm, Block, and others became so popular that it reportedly contributed $16.6 billion in online sales. Adobe said a 43 percent increase in the by-now pay later service by users on just one day—Cyber Monday.
As the new year began, many users are facing repayment terms. Some users manage to repay these short-term financing options, but others struggle as they have regular loan payments and the buy now pay later service they used during the holidays.
The Consumer Financial Protection Bureau released a report saying that many Buy Now Pay Later (BNPL) users had relatively healthy personal finances but were more likely to have higher debts revolving around their credit cards.
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According to a report in CNBC, companies such as Klarna, PayPal, and Affirm declined to share delinquency rates of BNPL.
Klarna told the outlet that its business’s global default rate was less than 1 percent, and 35 percent of its customers in the U.S. pay back early. It also said it charges up to 25 percent of the purchase price late fees.
Affirm said that it writes off unpaid loans within 120 days, which is why it does not disclose delinquency rates.
There is a lack of data on BNPL, which has been termed a “phantom debt phenomenon.” Credit card delinquencies are at an all-term high in the U.S., and it is hoped that BNPL does not follow a similar trajectory.
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