Despite BNPL’s Popularity, Overspending and Missed Payments Remain Top Issues, Bankrate Finds

Consumer demand for buy now, pay later loans may be high, but consumers are still at risk of overspending when using BNPL to finance a purchase or missing a payment.

A survey released Thursday by Bankrate LLC reveals that overspending and missing a payment are two of the most common issues BNPL users encounter. According to the study, 29% of respondents say they have spent more than they should with BNPL, while 18% have missed a payment.

On behalf of Bankrate, YouGov Plc surveyed 2,276 U.S. adults, 875 of which have used BNPL to finance a purchase.

Despite the risk that BNPL users will financially get in over the heads, BNPL loans themselves are not the root cause of the problem, since most BNPL users do not encounter those issues, says Ted Rossman, a senior industry analyst for Bankrate.

“Like power tools or credit cards, BNPL can be useful or dangerous,” Rossman says. “It’s not the product that is dangerous, it is how consumers use it. Consumers can trick themselves into overspending with BNPL because they are spreading out the payments.”

Rossman adds that while BNPL is a good way for consumers to manage finances, it should not be used as a “crutch” for impulse or everyday purchases, which can add up quickly.

Nor should BNPL be used to finance large discretionary purchases, such as travel, Rossman adds. Indeed, 38% of respondents say they are willing to go into debt this year for discretionary purchases, such as travel, dining and live entertainment, according to the survey.

“When it comes to impulse buys, $50 here and $100 there can add up quickly when paying with BNPL,” Rossman says. “Using BNPL to finance travel, which can be several thousands of dollars, is not ideal because pay-in-4 solutions may not offer enough installments to adequately spread out the purchase,” says Rossman.

Another leading issue consumers encounter with BNPL is difficulty returning an item. Some 18% of respondents say they had trouble returning a purchase or obtaining a refund for an item purchased with a BNPL loan. Overall, Bankrate found that 56% of respondents have encountered at least one issue with BNPL services.

Leading reasons why BNPL users choose the payment method are the ability to spread out cash flow (50%), the appeal of low or zero-percent interest rates (37%), knowing exactly how much they owe and how long the plan will last (33%), and easy access to credit (27%). Additionally, 26% of BNPL users perceive this payment method as more responsible than traditional credit cards. Respondents could cite multiple reasons why they use BNPL.

Despite the issues consumers encounter with BNPL, the product remains extremely popular, with 39% of respondents saying they have used BNPL services. Among respondents, PayPal Pay in 4 and PayPal Pay Later were the most popular BNPL services (16%), followed by Affirm (12%), Afterpay (12%), and Klarna (11%).

Millennials are the largest users of BNPL services (55%), followed by Gen Zers (51%). By contrast, 31% of Gen Xers and 25% of baby boomers have used BNPL services.

“Young adults tend to be worried about debt, and BNPL is a way for them to partition purchases off from other debt they may have, such as credit card or student loans,” says Grossman. “BNPL is one tool in the toolbox and should be used selectively.”

As the largest users of BNPL, 76% of Gen Zers and 65% of Millennials have experienced issues with the product, according to the survey. By comparison, 42% of Gen Xers and 32% of Baby Boomers have had at least one issue using BNPL.