Americans with lower credit scores and those who have a harder time accessing loans are more likely to be pitched — and to use — “buy now, pay later” payment plans, according to research from the Federal Reserve Bank of New York.
(Bloomberg) — Americans with lower credit scores and those who have a harder time accessing loans are more likely to be pitched — and to use — “buy now, pay later” payment plans, according to research from the Federal Reserve Bank of New York.
Tendency to use the plans, which allow consumers to pay off purchases over time, could derive from a range of factors, researchers wrote in a blog post published Tuesday. Among them: how the users are targeted, what they are buying, the location of the purchases and greater awareness about the option.
“We find both the availability and use of BNPL to be fairly widespread but see disproportionate take-up among consumers with unmet credit needs, limited credit access and greater financial fragility,” wrote Felix Aidala, Daniel Mangrum, and Wilbert van der Klaauw.
The researchers looked at data collected as part of the New York Fed’s June 2023 Survey of Consumer Expectations Credit Access Survey.
They found buy now, pay later payment plans are more likely to be offered to women, young consumers and people with higher incomes, as well as people with credit scores below 620. Yet they are disproportionately used by people with more “fragile” financial situations, including those with lower incomes, lower credit scores and those who have been recently rejected for credit applications.
While only 17% of those surveyed met one of three criteria – having a credit score of less than 620, reported having a credit application rejected, or were delinquent on a loan over the past year – that group made up about 33% of BNPL users.
And while 66% of all respondents who have ever been offered a buy now, pay later plan said they could come up with $2,000 for an emergency, that was true of only 52% of people who have used the flexible payment plans.
(Updates with chart.)
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