More African Americans using Buy Now Pay Later for groceries is this a problem?

As the cost of groceries in the US continues to rise by 8.4% this year, many Americans are turning to buy now, pay later (BNPL) apps such as Afterpay, Klarna, and PayPal to help bridge the gap between their paydays. Almost half of Americans have used installment loan apps, and one in five rely on them to buy groceries, according to Bloomberg. The boom of BNPL apps occurred during the pandemic, when consumers did the bulk of their shopping online. Five of the main lenders in the US opened up loans worth $24.2 billion in 2021, $22 billion more than those reported in 2019, according to the Consumer Financial Protection Bureau (CFPB).

The buy now, pay later model allows for shoppers to spread out the payments for their purchases into even installments without accruing interest, making it a substitute for high-interest credit cards. However, the convenience and accessibility of the loans can cause problems for consumers who may fall behind on payments, affecting their credit scores. The risks are even higher for Black and Hispanic users, who are more likely to already be in financial distress from other sources. According to Bloomberg, 70% of Black or Hispanic BNPL users have credit card debt, and on average they have about $12,000 less in savings than those who didn’t need to seek out help from the apps in the past year.

Despite the risks and statistics, the industry still positions itself as the more flexible and consumer-friendly alternative to traditional credit cards. A spokesperson for Klarna told Bloomberg that “regardless of what the purchase is, BNPL is a healthier and more sustainable option compared to high-cost credit cards that encourage minimum payments, keeping people in debt longer with extortionate interest.”

With the US Department of Agriculture estimating that an average family of four must spend a minimum of $1,000 on groceries per month in order to have a nutritious diet, it seems that even the most cautious spenders will have to make adjustments.