Using BNPL in food shows ‘personal desperation’

Misfits Market CEO Abhi Ramesh says there are no signs that food price inflation will ease anytime soon.

As prices rise, more and more Americans are finding new ways to make ends meet.

But with some necessary purchases, such as groceries, there are fewer debt-free options.

That’s why paying later options through companies like Klarna, Zip, Zilch, Affirm and Afterpay look increasingly attractive.

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About two-thirds of consumers are worried they won’t be able to buy groceries last month due to rising inflation, according to a recent Lending Tree survey.

At the same time, Zip said it saw 95% growth in U.S. grocery purchases, according to The New York Times. Klarna reports that more than half of the top 100 items currently purchased by app users are groceries or household items.

“The fact that so many Americans can’t afford food highlights the desperation this economic climate creates,” said Marshall Lux, a fellow at the Mossavar Ramani Center for Business and Government at Harvard Kennedy School. there is,” he said. .

“When people start putting off paying for groceries, it shows the height of personal desperation,” Lux added.

When people start putting off paying for groceries, it shows the height of personal desperation.

Marshall Lux

Fellow of the Mosabah Ramani Center for Business and Government at Harvard Kennedy School

Inflation began to ease overall last month, along with gasoline prices, but food costs rose 1.1% in July, up 10.9% year-on-year, according to the latest consumer price index figures.

The Home Food Index, which measures price volatility in grocery stores, posted its biggest 12-month rise since 1979.

BNPL use could mean people ‘extend themselves too much’

“For those who can afford to pay, this is an interest-free loan,” Lux said.

However, BNPL’s rapid growth is largely driven by young consumers, with two-thirds of BNPL borrowers considered subprime, making them particularly vulnerable to economic shocks and possible recessions. It does, Lux pointed out.

“In the best-case scenario, this can lead people to clingy or, in the worst-case scenario, overextend themselves.

Additionally, other studies have shown that the more BNPL accounts opened at once, the more likely consumers are to overspend, default or delay payments, and deteriorate their credit history.

In general, failure to make payments may result in late fees, deferred interest, or other penalties, depending on the lender. (CNBC’s Select has a complete roundup of fees, annual rates, whether credit checks are run, and whether providers report to credit scoring companies.

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