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Debt traps with sneaky marketing

As the name suggests, BNPL is a way for consumers to buy items without paying the price upfront. Instead, the payments are stretched out over multiple installments for several months or years.

Kamel believes that if you look closely, this "financial innovation" is just borrowing money with a unique marketing spin. “These short-term payment plans are a debt trap,” he says. “And companies just market it in a sneaky way so they can make even more money off you.”

He highlights the taglines of these BNPL platforms, like Affirm’s “Pay at your own pace" and Afterpay's "Shop now. Pay better."

Unfortunately, the marketing seems to be working. BNPL loan volume has exploded from $2 billion in 2019 to $24.2 billion in 2021, according to the Consumer Financial Protection Bureau (CFPB). Thirty percent of Americans are considering applying for a BNPL installment loan this month, according to the March 2024 LendingTree BNPL Tracker. PayPal is the most popular platform for this instrument and the average purchase amount of a BNPL loan is $132, according to Experian data cited in the LendingTree report.

Kamel believes the rise of these platforms is having a far-reaching impact across the economy.

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Overconsumption and essentials

BNPL platforms, according to Kamel, are designed to mask the true cost of purchases and encourage overspending. “Even if you do make your payments on time perfectly, the bigger problem at play is that BNPL numbs you to the reality of how much you’re really spending,” he says. “Cause instead of feeling the sticker shock, these installment plans are just feeding your ‘I want it now’ mentality and hiding the true cost of what you're buying."

Beyond hidden debt and overconsumption, Kamel is concerned about the way BNPL services are being used for more than discretionary spending. Services like Flex allow users to split their monthly rent into weekly or biweekly installments.

Meanwhile, services like Walnut and PayZen allow users to finance their medical bills with similar payment plans. Deferit does the same for monthly utility bills.

“[BNPL] are not making purchases more affordable,” Kamel says. “They’re just betting against you and cashing in on your psychology.”

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About the Author

Vishesh Raisinghani

Vishesh Raisinghani

Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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