Understanding the Impact of ‘Buy Now, Pay Later’ Loans on Consumers and Credit Reporting

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Overview of “Buy Now, Pay Later” Loans

Recent years have witnessed a surge in the adoption of “buy now, pay later” loans by shoppers, offering an easy and interest-free way to make purchases across various categories from clothing to event tickets. However, the absence of reporting such loans on consumers’ credit reports or credit scores has raised concerns about potentially hidden debt burdens.

In a notable development, Apple’s announcement in February to report loans from its Apple Pay Later program to Experian, a major U.S. credit bureau, marked a significant step towards addressing this issue. Despite this move, other leading pay-later providers have not yet followed suit, indicating a persistent gap between lenders and credit bureaus.

David Sykes, the chief commercial officer of Klarna, a prominent pay-later firm, expressed skepticism about the progress in bridging this gap, highlighting the need for more collaboration between the two sides.

These loans, which allow consumers to spread payments over time typically in four installments over six weeks without accruing interest, gained immense popularity during the pandemic. They played a crucial role in driving the online shopping boom and continued to see rapid growth, with the retail industry attributing part of its record-setting holiday sales to the widespread use of pay-later products.

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