If you’ve bought something online, you’ve probably seen an option at checkout to split the cost of your purchase into installments, often with a service called Klarna.
Increasingly, American consumers are using these buy now, pay later options for more than just big-ticket items like television and vacations. They’re using them for groceries, too.
Julie Creswell, who reports on business and food for The New York Times, said she found a data point in a survey from LendingTree that surprised her: 24% of people using buy now, pay later loans were using them for grocery shopping.
“That was up really sharply from 14% a year ago,” she said. “And so I started looking at that and thinking about that and wondering, was this an indicator of, like, how financially stretched some consumers have been, or is this an indicator of an industry that is rapidly expanding in the United States? And I think the answer is both.”
Data shows that food prices are up about 30% since 2019, Creswell said.
“Any of us that go into the grocery stores feel like every time, our cart just gets more and more expensive,” she said. “We heard from people that were saying that it was becoming more expensive to just go grocery shopping, and so they were looking for ways to split those payments up or to break up their grocery store bill so that they could smooth out their money spending activities.”
While Klarna loans have no interest, Creswell said there is still a risk that consumers overspend with multiple loans and feel the consequences later.
“It’s a process called loan stacking in which maybe, you know, I bought groceries on Tuesday from Klarna for $400. Now that’s getting split up,” she said. “And then I go to Best Buy and I bought new headphones, and I’m going to split that payment up. And then a couple of days later I go and I buy some shoes at Nike, and I am going to split that payment up.
“These programs, when you apply for the credit, you connect it immediately to your autopay on your bank account. And so those payments are going to come out. They’re going to just disappear.”
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However, many consumers Creswell spoke to said they much prefer these loans compared with borrowing money on a credit card and being hit with high interest rates.
“Some of the people that I spoke to had literally thousands of dollars of credit card debt and at interest rates that were 27%, 30%, 32%. So the last thing they wanted to do was to put groceries or something like that on a credit card,” she said. “They’re very protective of these loans. They’re gonna pay these bills off before they even pay some of their other bills off because they don’t wanna lose access to these low or zero interest rate loans.”
Economic experts said this trend illuminates the habits of low-income spenders in a way that helps give a snapshot of how the economy is doing overall.
“What we’re hearing from not only economists and analysts … right now is we’re really watching that low-income consumer. They are reducing or changing their spending patterns very, very rapidly,” Creswell said. “These are the customers that are the biggest users of these buy now, pay later loans.
“And I think that’s what’s concerning to analysts, is it’s an indication for them that that segment of the American population – people who are with household incomes of $25,000 or less or $50,000 or less – is struggling to meet daily essential needs.”
