Apps like Afterpay, Klarna, Affirm and other “buy now, pay later” services have gained a lot of popularity in recent years, especially among younger generations who may be unable to make large purchases at once. But a new report from SFGATE shows the dangerous underside of those services that are leaving people with massive amounts of debt.
These services, also known as “point-of-sale loans,” have been around for a few years, but gained popularity during the pandemic when everyone was stuck at home clicking “add to cart” on just about anything. The concept of the services is that you can choose to pay for a product in monthly installments instead of having to pay up all at once. With a small down payment and a few monthly installments, you could have whatever you wanted with the click of a button.
While these services allow individuals to easily keep up with the latest trends, it ultimately sets up consumers on an endless loan cycle. Each time they purchase a new product through these apps, they’re adding another loan they have to take care of. And after a while, the loans can get out of control.
SFGATE reported that Gen Z spends 925% more now than in January 2020. According to data provided by Affirm, consumers spend on average $365 on a single purchase through their service. That spending adds up to a lot of debt. One TikToker shared that she has accumulated $2,000 of debt through Afterpay.
The issue doesn’t just stop with the amount of debt consumers are adding to their carts. “Buy now, pay later” services heavily target younger audiences through influencers and brands on TikTok. Statistically, younger people don’t have as high of financial literacy or experience as older generations, which means they’re more likely to face penalties like if they miss a payment (SFGATE reported roughly 30% of users missed at least two payments).
“Credit has been made available to consumers very quickly and on a very large and international scale, and without the really proper and appropriate consumer protections in place,” Marisabel Torres, the California policy director of the Center for Responsible Lending, said. “There’s a lot of concern that consumers could be amassing large amounts of debt at a very quick pace without having a clear understanding of what the terms are.”
Regulations are likely coming to help keep consumers out of debt. But until then, people should be cautious with their budgets and aware of what they’re spending. If there isn’t enough funds to purchase an item at the moment, consider it a chance to reconsider if you really need to spend your money.
You can read the full report from SFGATE here.