3 Surprising Trends in Buy Now, Pay Later App Usage

Buy now, pay later (BNPL) apps hook consumers with what seems like a fantastic offer. Can't afford to pay for something in full? Use a BNPL app, and you can pay it off over time, interest-free.

There's debate about whether these provide a valuable service or a fast track into debt. Based on recent research, either can be true, but there are serious risks to using BNPL.

The Federal Reserve Bank of New York published a report on how and why consumers use BNPL. Here are the most important takeaways about BNPL usage for financially fragile and financially stable consumers.

1. Financially fragile consumers are frequent users

First, let's clarify what makes a person financially fragile or financially stable, according to the New York Fed. It classified consumers as financially fragile if any of the following factors were true:

• Having a credit score below 620
• Having been declined for a credit application in the past year
• Having fallen 30 or more days delinquent on a loan in the past year

Everyone else was put in the financially stable group.

When financially fragile consumers use BNPL, they're likely to use it often. Among those who had used it at least once, 59% reported using BNPL five times or more in the past year. More than a quarter (27%) had used it at least 10 times. They also use it for smaller purchases, with 62% having an average purchase price under $250.

Financially fragile BNPL users gravitate toward it for the ease of access and convenience. It's often one of the only interest-free financing options they can get approved for. This group is also more prone to overspending with it. They're more likely to state they use BNPL for purchases they couldn't otherwise afford.

2. Financially stable consumers use it less often and for large purchases

Among financially stable adults who use BNPL, it's more of an occasional way to pay. Only 23% reported using it five times or more in the past year, and 14% reported using it at least 10 times.

This group is also far more likely to make big-ticket purchases with BNPL. More than half (56%) had an average purchase price higher than $250. And 17% had an average purchase price of $1,750 to $2,000, compared to only 5% of financially fragile BNPL users.

Financially stable consumers often mention 0% interest as their reason for using BNPL. While they have access to credit, they prefer to avoid using their credit cards, likely because of high interest rates.

3. BNPL apps can be addictive

There's an important warning in the New York Fed's report: "We also show that across levels of financial stability, it is rare for people to use BNPL just once."

Among financially stable consumers who had tried BNPL, about 72% have used it multiple times in the past 12 months. Among financially fragile BNPL users, that jumps to 89%.

Once you make a purchase you can't afford with BNPL, it's easy to do it again. And again. There will always be things you want to buy but can't pay for in full. If you decide it's fine to borrow money for them, you're at risk of making this a habit. Some people even start "loan stacking" -- juggling multiple BNPL plans simultaneously.

I never use BNPL for this reason, and I don't recommend it unless it's for something you absolutely need ASAP. Otherwise, you're better off saving up the money first so you can pay in full. Wait until you have enough in your savings account before you buy.

Be careful with BNPL

BNPL apps may be presented as a convenient payment option, but they're ultimately a sales tool. Stores show you that smaller payment amount to convince you to make impulse buys and spend more money with them.

When you use BNPL, you're adding to your bills and taking on debt. The best option is to pay for purchases upfront. And if you can't at the moment, wait until you can afford the price tag before you make the purchase.