So-called “buy now, pay later” retail programs have been a controversial topic in Minnesota because of their high potential for consumer harm. But with a sweeping wave of new regulations, analysts hope the situation will improve.
What’s wrong with BNPL?
One of the problems with buy now, pay later is the way consumers have been using it. Others argue that consumers’ behavior comes as a direct result of the way these loans are marketed.
BNPL loans are specifically designed to make people want to borrow more. And with the lack of regulation and wealth of companies where you can get them from, those loans can easily start piling up.
You can easily end up with multiple loans and different payment plans. Trying to keep track of them all quickly becomes a juggling act for many consumers that they’re not always able to maintain. The end result is a tough financial situation and a damaged credit score.
Through the design of this type of installment loan, BNPL borrowers are encouraged to buy more things, which generates the need to borrow more money. This generates a cycle that leads consumers to take out multiple loans one right after the other.
Lenders say they’re not all bad
On the other hand, these loans are still a competitive alternative to traditional credit products because of their flexibility and low or no interest rates. According to providers, BNPL loans have helped numerous people.
Spokespeople for some of these companies have pointed out that borrowing money in this way doesn’t always lead to your debt spiraling out of control. Some say the consumers are to blame for the drawbacks while others point fingers at the lenders, but most seem to agree that tighter regulations are the answer.
Buy now, pay later is an attractive option to countless people. It gives you something other than the debt cycles that many credit products trap consumers in because of their steep interest rates. Top analysts hope that with this increased focus on regulations, BNPL lending can work better for everybody.
