Borrowers with subprime or deep subprime credit scores make up the majority of Buy Now, Pay Later (BNPL) originations, the CFPB said, in a new report.
From 2021 to 2022, borrowers with deep subprime credit scores accounted for 45% of BNPL originations, while people with subprime credit cards were responsible for 16% of originations.
Because lenders do not typically report BNPL loans to nationwide consumer reporting companies, there is little data about BNPL use—particularly data about consumers with multiple loans and on total consumer debt balances. In March 2023, the bureau issued market monitoring orders to several companies that offer no interest, pay-in-four BNPL loans in an effort to gather that data.
The CFPB said the report provides the first descriptive, consumer-level analysis of BNPL use, leveraging linked BNPL applications and applications with credit records.
Lenders have offered BNPL as an easy source of credit, the bureau said. “The application process is quick, involving relatively little information from the consumer, and the product often comes with no interest,” the CFPB said, in the report. “Lenders have touted BNPL as a safer alternative to traditional credit card debt, along with its ability to serve consumers with limited or subprime credit histories.”
The CFPB said in its report that:
- More than one-fifth of consumers used BNPL in 2022. Examining consumers with a credit history, the CFPB reported that 21.1% financed at least one purchase with a BNPL loan that year, up from 17.6% in 2021.
- About 20% of borrowers in 2022 were “heavy users” of BNPL, receiving more than one BNPL loan each month, up from 18% in 2021.
- About 63% of borrowers received multiple simultaneous loans at some point during 2022 and 33% took out loans from multiple BNPL lenders.
- BNPL borrowers were more likely to hold balances on other credit accounts.
- Younger borrowers had more BNPL debt as a percentage of their total debt than older people.
The report draws few conclusions about BNPL use. “The importance of BNPL in the credit profiles of BNPL borrowers underlines the need for further research to understand how this growing financial product causally impacts borrowers’ financial health,” the CFPB concludes.