By Tim Harris, CEO, FuturePay Holdings Inc.

As consumers navigate the early months of 2024, many find themselves with what the media is calling a Buy Now Pay Later (BNPL) holiday “Debt Hangover.” These customers may find themselves burdened by a fixed four- or five installment payment plan that is beyond their budgetary comfort zones.

The growing interest in BNPL has had a negative impact on many Americans, particularly younger generations. Millennials and GenZers elected to avoid traditional payment methods like credit cards because they watched their parents become bogged down with debt, leading the younger sect to opt for new payment methods like BNPL. The Atlantic called these BNPL solutions “new age layaway” programs, with nearly half of users being under 34 years of age. Although these financing options appeared less risky to consumers on the surface, the overuse of BNPL has created a new generation of debtors.

According to guidelines in Investopedia, “Buy now, pay later plans can be convenient for consumers, but they do little or nothing to help them build a good credit score,” especially since these methods don’t report to Federal bureaus. However, “if the consumer fails to pay, and their account is turned over to a debt collector, that can do their score serious damage.” Yet shoppers have precariously expanded their use of BNPL payments to anything from groceries to sneakers, prompting an inquiry into this method from the Consumer Financial Protection Bureau.

Just as ominously, pundits predict that due to the foundationally poor economics behind many BNPL offerings, this method is a bubble that’s about to burst. Several BNPL providers have found themselves in unstable situations, faced with diminishing investor support due to the unsustainability of their model. These companies often provide financing for free–or at the least, at rates well below accepted market levels.

Digital Revolving Credit Eases These Pain Point

Shoppers should take note of a more flexible digital financing option that presents a happy medium between traditional credit card programs and the lightly regulated BNPL installment loan offerings. Digital Revolving Credit delivers similar conveniences to BNPL but is structurally different in many beneficial ways.

A digital revolving credit account doesn’t require fixed installment payments like BNPL. A digital revolving account is opened once and can be used indefinitely, offering the consumer a reusable line of credit. In contrast, BNPL accounts are typically closed when the individual installment loan is repaid. If consumers want to use BNPL to finance additional purchases, they must apply for a new installment loan.

A digital revolving credit account is far easier to track and manage, since all purchases appear on a single statement. What’s more, users can establish a monthly payment schedule that meets their needs, adjusting the repayment amount and tiemframe according to their financial requirements over the long haul. This type of payment flexibility allows consumers to stretch out their payment horizon and as a result avoid potentially defaulting on a larger fixed payment.

Shoppers who have encountered financial difficulties because of signing up for inflexible, fixed payment BNPL installment loans now have an excellent alternative, digital revolving credit provides a more flexible, stable, and responsibly regulated option when financing  online purchases.

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