While online holiday shopping data shows many consumers opting to pay for items in installments "later," a Harvard financial expert told CNBC that delaying the purchases could end up hurting consumers in the long run.
"['Buy now, pay later'] means a Merry Christmas — but in the long run for many, [it] will hurt their credit," Marshall Lux, a senior fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School told CNBC. "[It is] horrible, and a real statement on how stressed the economy is, especially for the average American."
Mobile financial applications and web browser extensions like Klarna, Affirm, and Afterpay, give shoppers the ability to pay for items over time from four to several monthly payments, giving consumers a way to meet their holiday shopping goals without strapping them for cash, or running up credit cards.
The practice was used by 45% of shoppers for the first-time last year, becoming the third-most used method of purchases behind debit and credit cards, according to a November 2021 report by Cardify.
Almost 75% of shoppers planned to use the buy now, pay later services for 25% or more of their holiday shopping, the report said.
Recent online holiday shopping data from Adobe shows a similar trend developing for this year as well with almost 1% of daily orders using a buy now, pay later to check out.
The problem, however, comes in when buyers can't afford the delayed payments, risking the possibility of damaging their credit history.
A January survey published by Breeze., found that 57% using such services said they were spending beyond their means, many (41%) opening several of these types of accounts with multiple companies.
Alarmingly, 35% of those surveyed said they had missed, or made late payments on their purchases at least once, and 45% said the main reason for using these services is because they have poor credit histories and could not qualify for a regular credit card.
A full 62% of respondents said they expected to increase buying with these services in this holiday season.
The Breeze. survey was conducted online through the survey platform Pollfish with 1,500 Americans between Jan. 4 and 7 and did not include a sampling error with the methodology.
Despite higher prices and inflation concerns, online consumers have already spent some $20 billion this year on Black Friday and Cyber Monday.
That is about 10% of the $210 billion in estimated holiday season revenue.
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