BNPL companies typically do not report to credit scoring companies when consumers use these loans. This makes it difficult for lenders to keep track of consumer loan balances.
“This makes a big difference in how much you should borrow,” said Kenneth Lin, CEO of fintech firm Credit Karma. “Often, the credit system doesn’t really know how much you owe in a buy-now-pay-later scenario.”
Consumers with multiple BNPL loans with multiple payment dates can find themselves in a debt spiral. “That’s when people get into serious trouble,” Lin said.
“When it comes to your credit, it’s all downside, nothing upside,” said Matt Schultz, senior credit analyst at LendingTree.
BNPL companies typically don’t report positive payment histories, which is “very risky because they can’t build credit and show banks that they are worthy of credit,” he added. often have that mistake recorded and can have a negative impact on your reputation.”
Last month, about 35% of consumers said they would at least consider a pay-later loan., according to Lending Tree. In another survey, 42% of BNPL users said they were late paying on one of those loans.
Krissanapon Detrafifat | Moments | Getty Images
Experts say BNPL lenders may treat late fees differently.
For some, there will be fees involved. For others, they will lock you out of the service for the future and never lend to you again.
Meanwhile, the Consumer Financial Protection Bureau has launched an investigation into how BNPL lenders use consumer data and report that information. CFPB Director Rohit Chopra said in an interview with CNBC, “The problem is that they use methods to buy now and pay later for more expenses, including grocery and other store purchases. If so, they could be in a lot of debt.
“The key is to make sure you’re not creating a system that sends people into a spiral of debt that they can’t eventually repay.”
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