Buy now and pay later for consumer credit limits, according to a Consumer Insights Achievement Center study
The share of consumers with recent BNPL accounts who need help addressing unsustainable debt has grown by more than 50% since 2021, according to the first study by the Achieve Center for Consumer Insights.
San Mateo, California.And the September 22 2022 /PRNewswire/ — The rapid growth of buy now, pay later (BNPL) financing has had a ripple effect on consumer debt levels, according to a new study by Achieve, the leader in digital personal finance.
The full study (available here) found that an increasing number of already indebted individuals are taking advantage of BNPL financing to expand available credit limits before eventually needing help to address unsustainable levels of debt.
Consumer Insights Investigation Center
This study is the first in a series planned by the new Achieve Center for Consumer Insights, an ongoing initiative that leverages the Achieve team of digital personal finance experts to provide insight into the status of Achieve members, with a particular focus on emerging data and trends in personal loans and consumer debt. and real estate loans.
In addition to sharing insights from Achieve’s proprietary data and analytics, the Achieve Center for Consumer Insights intends to publish in-depth research, personalized data, and thoughtful feedback to support Achieve’s mission of helping ordinary people get ahead and stay on track. to a better financial future.
“Introducing the Achieve Center for Consumer Insights along with First appearance of the new Achieve tag Our expanded range of digital personal finance offerings reflects our commitment to supporting every step of our members’ financial journeys. We look forward to helping educate consumers about the state of their finances and keep them abreast of economic developments affecting household balance sheets,” Brad Stroh. “In addition, 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; and policy makers and other stakeholders.”
Impact of BNPL on Consumer Debt
From June 2022the percentage of Achieve Resolution members with BNPL accounts on their credit reports increased by 58% compared to January 2021. While the segment of Achieve Resolution members with BNPL trade lines is still relatively low, it is also likely to be an under-representation of the reach of the entire BNPL industry given the very few BNPL transactions currently being reported to the three major credit bureaus.
Many BNPL users can use this financing to extend their credit limits on existing credit cards and other accounts According to Achieve data – though BNPL is often described as a product designed for consumers who want to avoid credit cards and other traditional forms of credit.
Settlement members who have BNPL loans on their credit reports have more open business lines in their credit profile than members who don’t have BNPL loans. They also have more total trading lines – which include both current trade lines and previous accounts that were closed less than 10 years ago – reported in their credit files. Members with BNPL accounts have slightly higher credit card usage rates than Achieve Resolution members without them. They also have lower average credit scores than members without BNPL accounts. However, BNPL users had slightly higher household incomes (see Figure 1).
“The continued expansion of the reach of the BNPL industry comes hand in hand with a period of historical inflation and rising interest rates, which are putting pressure on household finances,” said Achieve, co-founder and co-CEO. Andrew Houser. “Buy now, pay later can be attractive to consumers who are looking for an interest-free option to pay for purchases over time. But even without financing charges, consumers can still get more terms with these loans.”
The average balance in BNPL accounts for Achieve Resolution members has decreased since the beginning of 2021, reflecting the wide availability of BNPL as a digital payment option at both virtual and physical POS. in June 2022Almost 50% of Achieve Resolution members with at least one BNPL account are Millennials and about a third are Gen Xers. The results of a recent echo investigation Study of the Consumer Financial Protection Bureauhighlighting the growth in the volume of BNPL loans and late fees to consumers.
Additional Key Results from Achieve Resolution
Evolution of financial hardships : Medical expenses have become the main reason why consumers seek Help in debt, reflecting an ongoing trend that began in early 2021 (see Figure 2). Declining income and job losses still accounted for a large portion of members’ hardships, but they declined over the same time period.
Generational Transformations: Since then, Millennial and Gen Z members seeking debt help have grown up through Achieve Resolution January 2021 , while the share of Silent Generation and Baby Boomer members is declining (see Figure 3). There are strong similarities between Generation X and Millennials across several major credit indicators, although the average age of Gen Xers enrolled in Achieve Resolution is 15 years older than Millennials (see Figure 4). The two generations have comparable credit scores, family income, and credit history, however Gen Xers average more business lines of credit reports. In addition, the three younger generations have a higher average household income than the Achieve Resolution members of Generations Silent and Baby Boomer.
The main results of realizing personal loans
Dealing with debt: Debt consolidation and credit card refinancing are the main reasons Achieve members get personal loans , consistently representing more than half of all new loan creations since the beginning of 2021 (see Figure 5). However, the proportion of members using personal loans to pay off major purchases is on the rise, accounting for 19% of loans obtained in June 2022.
Personal loan profile: Personal loan members achieved an average of 11 open trading lines when applying for a personal loan in June 2022. Loan amounts range from less than $10,000 to more $35,000with an average starting loan balance of just over $20,000. The key credit indicators for Achieve members for personal loans remain largely unchanged from last year, with the exception of the average credit score, which is down slightly in the June 2022 (See Figure 6).
Make room for millennials: Millennials represent a growing share of loan volumes and Achieve members’ share of personal loans is decreasing from the Baby Boomer generation, reflecting a similar trend in Achieve. Loans to Generation Z members were virtually non-existent in 2021, but now account for 2% of transactions in June 2022 (See Figure 7).
The main results of obtaining real estate equity loans
Safely access real estate property rights: Members who took out a home loan from Achieve to consolidate unsecured debts in June 2022 Save on average $669 Per month Compared to previous monthly debt obligations (see Figure 8).
Achieve’s Home Equity Line of Credit (HELOC) program is designed to help borrowers responsibly access equity to pay off debt or grow their cash reserves, without jeopardizing their long-term real estate goals. Members who have obtained a HELOC from Achieve to consolidate their unsecured debts in June 2022 Save on average $669 Monthly in payments compared to previous monthly debt obligations (see Figure 8).
Monthly savings: The average starting balances from realizing real estate equity loans were between $43,000 And the $59,000 From January 2021 to me June 2022 with an average starting balance of $55,579 (See Figure 9). Average monthly savings vary over time and by borrower, due to differences in the amount of debt, interest rate fluctuations, and other market-based and individual factors. Where January 2021real estate loan members have reduced their debt payments by an average $746 Per month.
Credit score improvement: Members usually see their credit score increase, In addition to improving monthly cash flow after consolidating debt with a home equity realization loan (see Figure 10). Home equity loans are structured as HELOCs at a fixed rate and fully drawn, allowing members to continue to access their home equity when needed over the draw period.
The full study, with graphs and data, can be viewed on the Achieve website or download a PDF of the report here.
achieve It is the leading digital personal finance company. Our solutions help ordinary people move forward and stay on the path to a better financial future, through innovative technology and customized support. Leveraging proprietary data and analytics, our solutions are tailored to every step of a consumer’s financial journey and include personal loans, mortgages, debt assistance, financial tools and education. Achieve is headquartered in San Mateo, California It has more than 2,700 dedicated employees across the country with hubs in CaliforniaAnd the Arizona And the Texas. The company is regularly known as the best place to work.
The above data is based on a representative sample of over 100,000 members who used the Achieve offers, personal loan and equity loans from January 2021 to me June 2022. The 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).
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