Buy now, pay later (BNPL) products give the illusion of cheap payments – something that is easy to get carried away, resulting in loan stacking and financial risk. This is an especially acute risk as millennials and Gen Zers feel cash-strapped more than ever and are looking for ways to increase their cash flow.
The increase in usage was recently demonstrated in Bankrate’s Buy Now, Pay Later Survey. According to the survey, more than a third of U.S. adults (39 percent) have used at least one BNPL service at checkout. If you have multiple BNPL subscriptions and find yourself in trouble, you are not alone and you have solutions. You just need to act quickly to avoid credit damage.
What is loan stacking?
Loan stacking involves juggling multiple loans or other credit products. While many consumers typically use this method to achieve a specific goal, such as paying off credit card debt or a personal loan, it has become an unfortunate side effect of frequent BNPL use. According to a 2023 survey, credit stacking is one of the most common risks among BNPL users Consumer Financial Protection Bureau (CFPB) report.
Unlike other credit products, such as personal loans, which typically require a hard credit pull, BNPL platforms typically approve users based on a soft credit check and bank account activity. This means that they have no insight into the user’s complete financial situation and creditworthiness.
The lack of guardrails, along with the initial payment requirement of 25 percent of the total purchase, makes it easy for users to overspend, increasing the likelihood of default.
How stacking BNPL payments affects consumers
The latest CFPB report shows that BNPL users had significantly more debt – personal accounts, personal loans and student loans – than non-users. It also reported that almost 95 percent of BNPL borrowers have a credit account, compared to 86 percent of non-users.
The higher debt burden among BNPL users may explain why many are struggling to keep up with their payments. According to the CFPB, they were more than twice as likely to be 30 days or more delinquent on a loan or credit product.
In line with the increased total debt borrowing, users likely had a higher utilization ratio. “In addition to having lower savings and less liquid assets, respondents who reported using BNPL in the past 12 months showed higher levels of credit card debt and credit card usage compared to non-BNPL users,” the report said.
What to do if you have problems with your BNPL payments
If you’re already having trouble keeping up with your BNPL payments, there are some ways you can get the situation under control, including the following:
- Request deferment of payment: Some BNPL platforms allow you to change or extend your deadline, which can help you avoid a late or missed payment. For example, Klarna offers a payment deferral of 14 days upon request.
- Contact your lender: If extending your due date doesn’t solve your problem, the next step is to contact the BNPL lending platform and ask about any hardship programs they may have. This can be especially useful if your financial situation has changed significantly since you first took out your loan (reduction of hours, loss of work, etc.).
- Use a credit card with a 0 percent introductory rate: If you have good credit and qualify for a credit card with a 0 percent introductory rate, you can transfer multiple BNPL balances to that account. This can give you some extra time to pay off your balance interest-free. However, when using this option, you need to consider your spending habits and make sure you don’t take on more debt as you pay off your balance. Otherwise, you could end up with higher interest rates and more debt than when you started.
- Consolidate your debts: If you have multiple BNPL balances that total $1,000 or more, consider applying for a personal debt consolidation loan. It can help you save money on interest and pay off your balances in a more organized way. However, your credit must be good enough to get a lower interest rate than your current interest rates, if any of your BNPL products have one. Otherwise, you will pay more interest than necessary at the end of the term of your loan.
The bottom line
It’s easy to lose track of your expenses when using BNPL, but this can lead to financial problems, especially if your financial circumstances change. If you’re having trouble keeping track of multiple payments, there are ways to get your finances back on track, but it may take a deep dive to figure out how you got there in the first place.
Once you better understand your situation, explore the repayment options available to you. However, no matter where you are in this process, don’t stop making the monthly payments until your balance is paid off in full.
Ultimately, you may need to reevaluate your budget and stop using BNPL services. Avoid online shopping and shop at stores that offer BNPL to help you rebalance your budget and avoid excessive debt accumulation.
