MARY LOUISE KELLY, HOST:
BNPL. It stands for buy now, pay later, and it is roaring this holiday season. To find out why, we have called Martha Gimbel. She's co-founder and executive director of the Budget Lab at Yale. Hi there.
MARTHA GIMBEL: Thank you so much for having me.
KELLY: Start with what buy now, pay later is. This is services like - I've seen Klarna. I've seen PayPal, Payl8r. It's that type thing?
GIMBEL: Yeah, so when you go to check out, there will often be - online - there will often be something that says, hey, do you want to pay us now or do you want to pay later? It's often set up as, say, four payments over time. If you're feeling strapped or if it just seems like a great opportunity to not have to pay right now out of pocket, it's something you can take advantage of.
KELLY: How is this any different from old-school, I've got a credit card, I'm going to charge something, I'm going to pay it off over time?
GIMBEL: A couple of things. One is not everyone has a credit card. And so if you don't have a credit card, this is a form of credit that you can access. The other is buy now, pay later does not always charge interest, and so it is, some ways, an easier form of credit for some people. That doesn't mean there are no downsides to it. I want to emphasize that. But for some people, it's an easier form of credit.
KELLY: When we say it is roaring, how much of what Americans are spending is buy now, pay later?
GIMBEL: So the best data we have on this is from the Consumer Financial Protection Bureau. They actually just released a report on this this year. Their most recent data is that about 21% of people are using buy now, pay later.
KELLY: Twenty-one percent?
GIMBEL: Yeah. This is something that's largely available if you buy things online. You know, if you walk into your local bookstore, they are not going to say to you, do you want to buy now, pay later? They're going to say...
KELLY: Right.
GIMBEL: ...Cash or credit?
KELLY: They're like, show me the money.
GIMBEL: Exactly. And so if you're doing more shopping online, it's going to be something that comes up more often for you.
KELLY: You said this is not without downsides. What are the downsides?
GIMBEL: I mean, the downsides here are the same as with any credit, right? You can take out too many loans. You can get yourself into trouble. The good news with buy now, pay later is that it does often, you know, like, commit you to this amount is coming out of your bank account at certain times. But if you're not prepared for that, you can end up with fees, and it may encourage you to spend more than you really can, right? If you're doing your Christmas shopping and you think, oh, wow, I can't really afford that, but I'll just hit buy now, pay later, and that's later me's problem, that can get you into trouble.
KELLY: So fit this into the broader picture. As you look at consumer spending this holiday season, compared to, say, last year around this time, buy now, pay later is way up. What does that tell us about how people are choosing to spend their money?
GIMBEL: Like everything else with the consumer right now, it's really confusing, and it's not clear. The fact that buy now, pay later use is up could mean that consumers are struggling, they're buying more things with credit. It could also just mean that people are doing more shopping online or in more places that have buy now, pay later available. It's really unclear at this exact moment how strong the consumer is, and I think it's really easy to overinterpret data from things like buy now, pay later - where we don't have a long history of data points here because it is so recent - to figure out what's going on.
KELLY: Right, because I'm thinking you could also make a case that maybe people are optimistic. Hey, I don't have that much in my pocket today, but next month is going to look great.
GIMBEL: Right. I'm anticipating my bonus. I know that this is coming in in January.
KELLY: Right.
GIMBEL: It's just hard, when you have a new technology or a new financial product, to predict where it's going and to draw more macro conclusions from it.
KELLY: So any tips for those of us who are going to be online, doing our holiday shopping, and our finger is twitching when we see the little buy now, pay later option?
GIMBEL: Don't buy anything you can't afford.
KELLY: (Laughter) Words of wisdom. Martha Gimbel is executive director and co-founder of the Budget Lab at Yale. Thank you so much.
GIMBEL: Thank you for having me. Transcript provided by NPR, Copyright NPR.
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