Credit cards have long been used by some to help people make ends meet. It is now not the only option people are using to pay for necessities.
According to a report by NerdWallet, 25% of Americans have used buy now, pay later programs. Of those, about 1 in 3 have used them to pay for necessities.
The Consumer Financial Protection Bureau noted there was a tenfold increase in usage of buy now, pay later programs during the pandemic. Last week, the CFPB issued new rules requiring buy now, pay later services to provide the same type of consumer protections offered to credit card users.
Unlike credit cards that generally have high interest rates, buy now, pay later programs usually do not. They instead break payments into several monthly installments.
However, consumer groups have expressed concern that these programs could cause more people to go into debt by buying items they couldn't otherwise afford.
"Because buy now, pay later services don’t require a credit check, the barrier to entry is low,” NerdWallet expert Sara Rathner said in the report. “This convenience can work against you, however, if you’re taking on more debt than you can realistically pay off.”
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The number of people using buy now, pay later to pay for necessities is still far smaller than the number of people who use traditional credit cards. According to NerdWallet, 1 in 3 Americans have used a credit card to pay for a necessity in the last 12 months. All told, 66% of Americans used a credit card in the past 12 months, according to the data.
“How we use credit says a lot about our overall household financial health,” Rathner said. “At one end of the spectrum, someone could be paying off their credit card balances each month and racking up rewards points to use on a vacation. At the other is someone signing up to buy now and pay later on their weekly groceries. Access to credit is useful in both of these scenarios, though the costs and benefits of these types of credit can vary dramatically.”
The report comes as more people are maxing out their credit cards.
The Federal Reserve Bank of New York released new data indicating that the share of maxed-out borrowers is back to pre-pandemic levels. The data revealed that borrowers who have maxed out their credit cards are far more likely to be delinquent with payments than others.
Recent data has also shown that credit card debt is quickly rising after dipping during the pandemic, as many Americans were able to catch up on payments with the help of economic stimulus checks.
