Buy now, pay later stretches consumer credit limits, according to Achieve Center for Consumer Insights study
The share of consumers with recent BNPL accounts who need help dealing with unsustainable debt has increased by more than 50% since 2021, according to the first study by the Achieve Center for Consumer Insights
SAN MATEO, Calif., September 22, 2022 /PRNewswire/ — Rapid growth in buy now, pay later (BNPL) financing has had a cascading effect on consumer debt levels, new research finds Reachthe leader in digital personal finance.
The full study (available here) found that an increasing number of already indebted individuals are taking advantage of BNPL funding to stretch their available credit limits before ultimately needing help to cope with unsustainable levels of debt.
Go to Consumer Information Center
The study is the first in a series planned by the new Achieve Center for Consumer Insights, an ongoing initiative that leverages Achieve’s team of digital personal finance experts to provide insight into the state members of Achieve, with a particular focus on emerging data and trends. in personal loans, consumer debt and home equity loans.
In addition to sharing insights drawn from Achieve’s proprietary data and analysis, Achieve’s Consumer Insights Center intends to publish in-depth research, tailored data and thoughtful commentary to support of Achieve’s mission to help everyday people get on and stay on track. to a better financial future.
“Presenting the Achieve Center for Consumer Insights alongside the launch of the new Achieve brand and our expanded suite of digital personal finance offerings reflects our commitment to supporting every step of our members’ financial journey. We look forward to helping educate consumers about the state of their finances and keeping them informed of economic developments that affect household balance sheets,” said the co-founder and co-CEO of Achieve. Brad Stroh. “Furthermore, we hope that the data and research produced by the Achieve Center for Consumer Insights will encourage thoughtful dialogue among technology and financial services professionals, academic and advocacy groups, policymakers and other stakeholders. .”
The Effect of BNPL on Consumer Debt
From June 2022the percentage of Reaching Resolution members with BNPL accounts on their credit reports increased by 58% compared to January 2021. Although the segment of Achieve resolution members with BNPL business lines is still relatively small, it is also likely an underrepresentation of the entire BNPL industry reach, as very few BNPL transactions are currently reported to the three major credit bureaus.
Many BNPL users are likely to use this funding to extend their credit limits on existing credit cards and other accounts according to data from Achieve — even though BNPL is often touted as a product designed for consumers who want to avoid credit cards and other traditional forms of credit.
Reaching Resolution Members with BNPL loans on their credit reports have more open trade lines on their credit report than members without BNPL loans. They also have more total trade lines — which includes both current trade lines and old accounts that were closed less than 10 years ago — reported in their credit reports. Achieve members with BNPL accounts had slightly higher credit card usage rates than Achieve resolution members without. They also had lower average credit scores than members without BNPL accounts. However, BNPL users had slightly higher household incomes (see Figure 1).
“The continued expansion of BNPL’s reach comes with a period of historic inflation and rising interest rates that are straining household finances,” said co-founder and co-CEO of Achieve. André Housser. “Buy now, pay later may be attractive to consumers looking for an interest-free option to pay for purchases over time. But even with no finance charges, consumers may still be overburdened using these loans.”
Achieve Resolution members’ average BNPL account balance has declined since the start of 2021, reflecting the widespread availability of BNPL as a digital payment option at virtual and physical outlets. In June 2022nearly 50% of Achieve resolution members with at least one BNPL account were Gen Y and about a third were Gen X. Achieve’s findings echo a recently published publication Consumer Financial Protection Bureau Studywhich highlights growth in BNPL loan volume and consumer late fees.
Key Additional Findings from Reaching for Resolution
Evolution of financial difficulties : Medical expenses have become the number one reason consumers seek help from Achieve to settle their debts, reflecting an ongoing trend that began in early 2021 (see Figure 2). Declining incomes and job loss continue to be the source of much of the hardship for members, but have declined over the same period.
Generational changes: Millennials and Gen Zers seeking help with their debt issues through Achieve Resolution have since risen January 2021 , while the share of silent generation and baby boomers is declining (see Figure 3). Strong parallels exist between Gen X and Gen Y on many key credit metrics, even though the average age of Gen X on the Achieve resolution is 15 years older than that of Gen Y (see figure 4). Both generations have comparable credit scores, household incomes, and credit histories, however, Gen Xers have more credit report business lines on average. Additionally, the three youngest generations all have a higher average family income than Reach to Resolve members of the Silent and Baby Boomer generations.
Main results of Achieve Personal Loans
Dealing with Debt: Debt consolidation and credit card refinancing are top reasons Achieve members get personal loans , consistently accounting for more than half of all new loans issued since the start of 2021 (see Figure 5). However, the share of members using personal loans to pay for major purchases is on the rise, accounting for 19% of loans obtained in June 2022.
Personal loan profile: Achieve Personal Loan members had an average of 11 business lines open when they applied for a personal loan in June 2022. Loan amounts range from less than $10,000 to end $35,000with an average starting balance of just over $20,000. Key credit metrics for Achieve Personal Loans members remain largely unchanged from a year ago, with the exception of the average credit score, which declined slightly in June 2022 (see figure 6).
Make way for Millennials: Millennials account for a growing share of loan volume , and the share of baby boomers with an Achieve personal loan is declining, mirroring a similar trend in Achieve resolution. Loans for Gen Zers were almost non-existent in 2021, but now account for 2% of transactions in June 2022 (see Figure 7).
Key Home Equity Loan Results
Safely access the equity in your property: Members who have obtained a home equity loan from Achieve to consolidate their unsecured debt into June 2022 save on average $669 per month relative to their previous monthly debt obligations (see Figure 8).
Achieve’s Home Equity Line of Credit (HELOC) program is designed to help borrowers responsibly access home equity to pay down debt or increase their cash reserves, without compromising their long-term goals of home ownership. Members who have obtained a HELOC from Achieve to consolidate their unsecured debt in June 2022 saved on average $669 per month in payments relative to their previous monthly debt obligations (see Figure 8).
Monthly savings: Average starting balances for Achieve home equity loans are between $43,000 and $59,000 of January 2021 at June 2022 with an average initial balance of $55,579 (see Figure 9). Average monthly savings vary over time and by borrower, due to differences in debt amounts, interest rate fluctuations, and other individual and market factors. Since January 2021Members of the Reach Home Equity Loans program reduced their debt repayments by an average of $746 per month.
Credit score improvement: Members generally see their credit ratings increase, in addition to improving their monthly cash flow after consolidating their debts with an Achieve home equity loan (see Figure 10). Achieve Home Equity Loans are structured as fully drawn fixed rate HELOCs, allowing members to continue to access their home equity when needed during the drawdown period.
Reach is the leader in digital personal finance. Our solutions help everyday people engage and stay on the path to a better financial future, through innovative technology and personalized coaching. Leveraging proprietary data and analytics, our solutions are tailored to every stage of a consumer’s financial journey and include personal loans, home loans, debt relief, and financial tools and education. . Achieve is headquartered in San Mateo, California and has more than 2,700 dedicated employees across the country with centers in California, Arizona and Texas. The company is regularly recognized as Best Place to Work.
The data reflected above is based on a representative sample of over 100,000 members who have used the resolution, personal loan and home equity loan offerings of January 2021 at June 2022. Data and results represent products and services offered by Achieve and its affiliates, including Bills.com, LLC d/b/a Achieve.com (NMLS ID #138464); Freedom Financial Asset Management, LLC (NMLS ID #227977); Freedom Resolution (NMLS ID 1248929); and Lendage, LLC d/b/a Achieve Loans (NMLS ID #1810501).