It was a simple task. Brittany needed a new couch. However, every time she found one she liked, she hesitated at the checkout. The price tag was too high. She did not want to commit to such a large purchase all at once. Then, she noticed something interesting. Right below the usual payment options, there were new choices. Companies like Klarna, Affirm, and AfterPay offered to split the cost into smaller payments. This is what people call "buy now, pay later" or BNPL.

BNPL is becoming more popular. Over one in five people have used it, according to the Consumer Financial Protection Bureau. Most of these users have poor or limited credit history. This is because BNPL loans are easier to get than traditional credit cards or bank loans. Young people and those with bad credit find it appealing. However, there are concerns. Some people use BNPL for everyday purchases, like groceries. This raises questions about the risks of turning necessities into debt.

Klarna's partnership with DoorDash is a good example. It's not about the food, but the convenience. This is similar to how companies like Uber and Airbnb changed habits by offering easy, on-demand services. However, BNPL companies face challenges. Klarna, for instance, doubled its losses in the most recent quarter. This is partly because people are not paying back their loans. So, are BNPL companies banks or tech companies? How should they be regulated? These are questions that need answers.

BNPL companies have been able to avoid some regulations that banks face. This is often called "regulatory arbitrage. " They find ways to operate without following the same rules as traditional financial institutions. However, this is changing. The CFPB has said that BNPL companies are credit card providers. This means they must follow certain laws, like the Truth in Lending Act.

There is also a shift in how BNPL payments affect credit scores. In the past, missed payments were not reported to credit bureaus. But now, Equifax, Experian, and TransUnion are changing this. This means that if you fall behind on BNPL payments, it could hurt your credit score. At the same time, the CFPB might not provide the same protections it used to.

The rise of BNPL is also linked to what some call the "millennial lifestyle subsidy. " Tech companies offered convenient, often cheaper services. But prices have been rising. BNPL companies are now stepping in to help with these rising costs. However, this raises questions about who pays for these subsidies in the long run. It's often the consumers who become reliant on these services. If BNPL loans become hard to pay back, it might force people to rethink their spending habits.

Brittany, for one, decided to wait. She will buy her couch when she can pay for it all at once. She wants to avoid the temptation of splitting the bill. It's a simple choice, but it shows the power of convenience and the risks that come with it. As BNPL becomes more common, it's important to think critically about how we pay for the things we want and need.

Splitting the bill: The rise of pay later plans

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