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Buy now, pay later – it’s not a boom, it’s a bubble, says a Harvard employee

Buy now, pay later - it's not a boom, it's a bubble, says a Harvard employee

Most people love the convenience of buying now, paying later.

Since the beginning of coronavirus pandemicinstallment payments have grown in popularity along with overall growth online shopping.

Initially allocating the cost of buying a large ticket – as a Pelatonfor example – just financial sense, especially at 0%.

Now, according to Experian, 4 out of 5 consumers in the US use BNPL on everything from clothes to detergents, and most buyers said buying now, payments later could replace their traditional payment method (probably credit cards).

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“It’s harder to buy anything without asking if you want to pay over time,” says Marshall Lux, an employee of the Mosavar-Rahmani Center for Business and Public Administration at Harvard Kennedy School.

Nowadays, most consumers will see the “Buy Now, Pay Later” option when shopping online at retailers such as Target, Walmart and Amazon, and many vendors are introducing browser extensions that can be downloaded and applied to any online purchase. Then there are programs that allow you to use installment payments buy things in personalso – just like you would use Apple Pay.

“Three years ago people were talking about Peloton bikes, now people are buying sneakers, jeans, socks,” Lux said. “When people start buying household goods on credit, it signals a problem.”

When people start buying household goods on credit, it signals a problem.

Marshall Suite

Member of the Harvard Kennedy School

In addition, the rapid growth of the BNPL is primarily due to young consumers, with two-thirds of BNPL borrowers considered substandard, Lux said, making them particularly vulnerable to economic shocks or a possible downturn.

“These are the people who can’t afford to suffer,” he said.

In addition, almost 70% of users who buy now, pay later, admit that they would spend more than they would if they had to pay for everything in advance, poll from LendingTree.

In fact, 42% of consumers who bought now, paid off the loan later, made a delay on one of these loans, found out LendingTree.

Generation Z is more likely to miss payments and push BNPL for everyday shopping rather than for goods with big tickets, a separate statement said. poll on the Piplsay poll site.

Generally, if you miss a payment, there may be a delay in payment, deferred interest or other penalties, depending on the lender. (CNBC Choose has a full review fees, annual, or a credit check performed, and if the provider reports credit scoring companies, and in this case, late payment may also affect your credit rating.)

Although, “they won’t come for your sneakers, the fact that you can buy something and not know what will happen if you default – for an ordinary person who works from salary to salary, it becomes a problem,” said Lux. “I think it’s a little Wild West.”

Without much oversight by regulators, the BNPL market now exists in a “legal gray space,” according to Lux.

“Let’s do a stress test,” he said. “It could get a pretty big bubble.”

The Consumer Protection Bureau has opened the request in popular programs buy now, pay later.

The Financial Control said it was particularly concerned about how these programs affect the accumulation of consumer debt, as well as what consumer protection laws are applied and how payment providers collect data.

“Buy now, pay later” is a new version of the old deferral plan, but with modern, faster twists, when the consumer gets the product immediately but also gets the debt right away, ”CFPB Director Rohit Chopra said in a statement.

The CFPB has not yet announced its next steps.

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