As grocery prices continue to rise, you have probably felt the pinch in your family budget. According to Moody Analytics, the average American family is spending $700 more per month on food and other household goods than just two years ago. Incomes have not kept up with inflation. Consumers are looking for options to pay for groceries, and many are turning to Buy Now Pay Later (BNPL) apps. The use of these apps to pay for groceries has risen by 40% in the past year.
Installment plans have been around for decades. Forty years ago, my husband and I bought furniture for our first home using a similar program. We selected the items we wanted and completed a credit application. The store delivered the goods, and we paid for it in 12 payments with no interest accruing. Many furniture companies and other sellers of high-ticket items still use this type of payment plan.
What’s new is the BNPL apps offer services for all types of purchases, not just large purchases of long-lasting items. Amazon is offering installment plans on many items priced over $50. And many BNPL offer four interest-free payments on groceries and meal deliveries. In most cases, the consumer makes payments every two weeks. These apps provide the convenience of credit card payments but differ in some ways.
- Credit cards extend interest-free credit for 30 – 60 days. BNPL apps require the first payment at the time of purchase.
- BNPL allows for small, more frequent payments, whereas credit card balances must be paid in full when the statement is due to avoid interest.
- Many BNPLs do not have a minimum credit score, so it may be easier for individuals with poor credit to get approved for BNPL purchases.
- Most BNPLs do not report payment history to credit-reporting bureaus, so using BNPL apps will not help you build your credit history or improve your credit score.
- If you use BNPL loans regularly, you may have multiple loans open simultaneously, and the loan payments may total more than you can afford to pay.
- Returns and disputes are more complicated with BNPLs than with credit cards.
Some of the same dangers of using credit cards apply to BNPLs:
- Users of both credit cards and BNPL apps typically spend more money than they would have if they had paid cash.
- The buyer consumes the items before paying the last installment. For example, BNPL splits a grocery order into four payments over six weeks. Typically, the person ate the groceries long before the final payment.
- Balances not paid off in the interest-free period are subject to very high interest rates. Currently, those rates can be as high as 36%.
Research shows that BNPL users generally have more debt and are under more financial stress than non-users. Frequent use of BNPL apps can add to your stress as the number of loans and the total payments increase. Of course, irresponsible use of credit cards will also lead to financial stress.
If you are struggling to feed your family during these tough economic times, look for alternatives to buying groceries on credit with either Buy Now Pay Later apps or credit cards. These can include buying more store brands, avoiding grocery shopping and delivery services, building your menus around grocery items on sale, and seeking assistance from your local food pantry.
God does not intend His people to live in financial stress. He has set forth money management principles in His word to help you. To learn more, please read my other blogs on financial management. My book Honoring God with Your Money is another valuable resource you might want to read.
Susan's Reflections 