Use of BNPL for food shows ‘personal desperation’

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As prices rise, Americans are finding more and more new ways to make ends meet.

But with some necessary purchases, like groceries, there are fewer options that don’t involve going into debt.

This makes the option to pay later – through companies such as Klarna, Zip, Zilch, Affirm and Afterpay – increasingly attractive.

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About two-thirds of consumers have worried in the past month that they won’t be able to shop due to rising inflation, according to a recent LendingTree investigation found.

Meanwhile, Zip said it saw 95% growth in U.S. grocery purchases, according to The New York Times. Klarna said more than half of the top 100 items users of its app currently buy are groceries or household items.

“The fact that there are large numbers of Americans who simply cannot afford food highlights the desperation this economic climate is creating,” said Mossavar-member Marshall Lux. Rahmani Center for Business and Government at Harvard Kennedy School. .

“Once people start extending grocery payments, it shows the height of personal desperation,” Lux added.

Once people start stretching out grocery payments, it shows the height of personal desperation.

Marshall Lux

member of the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School

Although inflation overall began to ease last month with gasoline prices, food prices rose 1.1% in July, carrying the year-on-year gain to the other at 10.9%, according to the latest Consumer price index The figures.

The Food at Home Index, a measure of price changes at grocery stores, recorded the biggest 12-month increase since 1979.

The use of BNPL could mean that people are “going overboard”

“For someone who has the ability to pay, this is an interest-free loan,” Lux said.

However, BNPL’s rapid growth is mainly driven by younger consumers, with two-thirds of BNPL borrowers considered subprime, Lux noted, making them particularly vulnerable to economic shocks or a possible recession.

“In the best case, it will allow people to hang on or, in the worst case, to overtake themselves,” he said.

Additionally, the more BNPL accounts open at the same time, the more prone consumers are to overspending, missed or late payments, and poor credit history. other research shows.

Generally, if you miss a payment, you may be charged late fees, deferred interest, or other penalties, depending on the lender. (CNBC’s Select has a full rundown of fees, annual percentage rates, whether a credit check is performed, and whether the provider reports to credit reporting companies, in which case a late payment could also affect your credit score.)

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