Approximately one in four buy now pay later (BNPL) users are financially vulnerable, and over 60 per cent would not have made a purchase if the service was not available to them.
This is according to new data released by the Financial Health Network (FHN), which has brought to light how financially vulnerable consumers are the most likely to use BNPL and are also the most likely to struggle repaying loans.
The data pointed to younger and less financially healthy households as being the most likely demographic to use BNPL. They are nearly four times more likely to use BNPL than the financially healthy.
Looking at the data holistically, only eight per cent of users found it difficult to use BNPL and make repayments. However, this statistic rose significantly when 24 per cent of financially vulnerable BNPL users reported encountering challenges with the process.
In spite of this, the data still suggests that an overwhelming majority of users fully understand the terms and are successfully using the product.
Almost half said they wouldn’t have spent more than they otherwise would have done when using BNPL. This includes the 34 per cent of users who wouldn’t have made the purchase had BNPL not been available.
The average balance of short-term BNPL users who took part in this survey was $330.
As a point-of-sale loan, BNPL is viewed by some as a tech-friendly alternative to credit cards or a modern twist on layaway financing that lets consumers pay for online or in-store purchases over a set period, with four payments over six weeks being a typical repayment plan.
Ten per cent of households have used BNPL in the 12 months prior to November 2021. Of these, 70 per cent report using a short-term, no-interest BNPL plan.
A fifth of BNPL users do not have or do not use credit cards, and around 40 per cent have subprime credit scores.
‘Pay in four’, which divide payments into four instalments with no interest charge, and longer-term instalment loans are also popular plans.
“BNPL could be a mixed bag for consumers. On the one hand, it provides a convenient and low-cost way for consumers to finance purchases, but there are customers who are using BNPL to make purchases they would not otherwise make,” said Meghan Greene, director of research at FHN.
“It’s still too early to know the full impact of BNPL on the financial health of consumers, but we do see potential warning signs in the number of consumers, particularly those who are already financially vulnerable, who report struggling to make repayments.”
