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Good morning. You miss me? It’s good to be back. Here’s something exciting: Now you can listen to The Morning instead of just reading it. Click the headphones icon above, then click the play button. There’s lots of news today. Let’s start with the exploding business of buy-now-pay-later loans.
Working capitalIt was tempting, during the pandemic, to “buy now, pay later,” as a new class of apps was offering. Because: What a treat. Here was a company in Alaska offering to ship wild-caught salmon to New York — and no need to pay for it right away? Sure! We got deliciousness on the installment plan and paid no interest along the way. Six years later, folks are using what’s known as B.N.P.L. for a lot more than fancy seafood. Lending apps can now cover your electricity bill, your health insurance, your water bill, your visit to the dentist, even your mortgage or rent. Use one to pay a $200 bill today, and it might subtract $25 from your bank account every week for two months, plus a few bucks for fees. My colleague Stacy Cowley, who covers consumer finance, has a smart story about the loans. They’re becoming the “working capital for the modern middle class,” a market expert told her. “Consumers are using it more for essential, everyday things.” Credit card spending is still by far the larger business. But pay-later loans practically doubled in just a couple of years, with no signs that the growth is stalling. Is that a change in consumer preference — or are folks just desperate to meet their monthly nut? Stacy’s reporting suggests it may be a combination of both: Ashley Reed, 40, initially used pay-later loans for small indulgences. Then a family emergency upended her finances: Her mother had a brain aneurysm, hours away from their home in Baltimore. Ms. Reed maxed out her credit cards paying for emergency care, including an ambulance trip not covered by insurance and a hotel room near her mother’s hospital. Loans from Afterpay, Klarna and other merchants became the only way she could keep up with her electric bill, auto insurance and repairs, and other essentials. Now, she spends about $700 a month paying down the debts and then borrowing more on her pay-later loans to stay afloat. “It’s a roller-coaster ride, up and down — I can’t afford to have an emergency,” she said. “Sometimes I’m like, OK, am I going to have enough for groceries? Pay-later loans are an attractive way to answer that question in the affirmative. Miss a rent check and you face late fees, or eviction. Put your daily living expenses on a credit card and you could end up in a debt hole that grows every month.
But taking out a pay-later loan? The stakes aren’t as high, Stacy told me. “The appeal of B.N.P.L.,” she said, “is very concrete payment terms (fixed versus interest, which most people — including me! | |||||||||||||||||||||||||
