Payment history is often not reported
BNPL companies usually do not report to credit-scoring companies when consumers use these loans. This makes it a challenge for the lender to know how many loans are owed to the consumer.
“It makes a big difference in how much debt you should take out,” said Kenneth Lin, CEO of fintech company Credit Karma. “Often, a credit system is really blind to how much is owed in a Buy Later Pay Later scenario.”
Consumers with multiple BNPL loans with multiple payment dates may find themselves in a debt spiral. “That’s when people get into deep trouble,” Lin said.
Difficult to build credit history
“When it comes to your credit, it’s all negative and there’s no upside,” said Matt Schulz, senior credit analyst at LendingTree.
Since BNPL companies usually do not report positive payment history, “it is really risky because you are not able to build your credit and show banks that you are creditworthy,” he said. “On the other hand, if you slip, many times that mistake will be recorded and it can have a negative impact on your credit.”
About 35% of consumers said they were considering using at least now to pay off the loan later last month., according to LendingTree. Another survey found that 42% of BNPL users said they had made late payments on one of these loans.
Impact of late payment varies
Krisnapong Detraphifat | moment | Getty Images
Experts say that BNPL lenders may handle late payments differently.
For some, you end up getting hit with fees. For others, they put you out of service for the foreseeable future and they won’t lend you money again, Schultz said. Some companies will report the delinquency to credit rating companies, while others will not.
Meanwhile, the Consumer Financial Protection Bureau has launched an investigation into how BNPL lenders are using consumer data and reporting that information. CFPB director Rohit Chopra said in an interview with CNBC, “The problem is that when they’re using Buy Now, they pay for more and more expenses later, including groceries and other in-store purchases.” involved, they can incur a lot of debt.”
“The main thing is to make sure we’re not creating a system that … sends people into a spiral of debt that they can’t eventually repay.”
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