Numbers Game: the pros and cons of buy now, pay later

For better or for worse, buy now, pay later became increasingly popular over the holiday shopping season and there seem to be few signs of that trend slowing down anytime soon.

Most BNPL models give consumers flexibility while paying low or no interest on purchases made, according to Erin Jaeger, Klarna’s head of North America.

• Credit cards on the other hand, are not as forgiving: 43% of credit-card holders are not aware of the interest rate on their cards, according to Nerdwallet.
• Klarna argues that consumers need to cap their spending on a monthly basis, and the number of people who have done so—or updated their budget on Klarna—has gone up by 68% year over year.

However, Tim Quinlan, senior economist at Wells Fargo, recently told CNBC that consumers are racking up a lot of “phantom debt,” which could mean households are more in the red than they believe.

• During the holiday shopping season, the use of installment payments reached an all-time high with a 14% YoY increase, according to Adobe.
• In surveying its consumers, Klarna says more than 50% use Klarna because it makes them plan their finances better.

“BNPL could lead to an increase in consumer debt, as consumers may be more likely to take on additional debt if they know they can spread out the payments,” Quinlan said. “You can bury yourself in low monthly payments.”