Jimmy Kimmel (inaccurately) quoted a report of mine
Here's what you need to know about the trends shown in the report -- and what it says about consumers today
Hi, my friend.
So, it isn’t every day that a late-night talk show host mentions something you wrote in his monologue. It is even less common when you write about personal finance for a living.
Still, that’s exactly what happened to me this past week. Jimmy Kimmel, on his show “Jimmy Kimmel Live,” referred to a report I wrote for LendingTree.com about buy now, pay later (BNPL) loans. These loans, which have exploded in popularity in the past five years, are installment loans in which you typically make the first payment at the time of the initial purchase and then make three more equal payments — one every two weeks — until the loan is paid off. (Some big BNPL lenders are Affirm, AfterPay, Klarna and Sezzle. Here’s a deeper explainer from LendingTree.)
They’re used most often by younger Americans, but every age group in this country uses them to some degree. People like them because they’re easier to get than a credit card, typically are interest-free when used wisely, and are finite. When it is paid off, it is paid off, so there’s no worry about running up extra debt with it.
They’re most often used for clothing, technology items, and home decor, such as furniture and kitchen appliances — things you can’t quite afford to pay cash for. However, in recent years, a wider array of items is being bought with these loans, as BNPL lenders make it easier and easier to purchase nearly anything with the loans through their apps.
The stat that caught Jimmy Kimmel’s attention
Our report showed that 1 in 4 people who have had a BNPL loan in the past say they have used one to buy groceries. That’s up from 14% just a year ago and is the highest in the three years we’ve tracked it at LendingTree.
The fact that so many people are using these loans is troubling. These loans can be a valuable, useful tool, but they’re simply not meant to be used for purchases like groceries. So many people using them that way is yet another sign of just how many Americans are struggling to extend their budgets in these challenging economic times.
The report has spurred an absolute avalanche of coverage, including, of course, Jimmy Kimmel Live. (Click below to watch. Forward to the 3-minute mark to see the mention of the report.)
It is definitely wild to hear something you wrote quoted by a late-night host, but while Kimmel is generally right in seeing the report as an indicator of just how much consumers are struggling, he and his people didn’t quote the report accurately.
What’s the right number?
Kimmel said that 25% of Americans are using these loans to buy groceries. However, what our report actually said is that 25% of Americans who have used BNPL loans have used these loans to buy groceries. That’s an easy mistake to make, but it is an important distinction.
About half of Americans say they’ve used one of these loans. Our survey found that 25% of those people have bought groceries with them. It still adds up to a whole lot of people using these loans for a purpose that they aren’t really intended for — and it still is a newsworthy number — but it is less than what Kimmel said.
To be fair to Kimmel, he’s hardly the only one who has made that mistake. Other outlets have, too. It is something that those of us who deal in polling and data are used to seeing. Sometimes it is a simple mistake, sometimes it is done to mislead, sometimes it is somewhere in between. The best way to know for sure whether a piece of data is represented accurately in what you’re watching or reading is to go back to the original source — the report itself — and see for yourself what it says.
How best to handle buy now, pay later loans
Either way, these loans are incredibly popular and getting more so. Here are a few things you need to know before you get one…
Just because you can get one doesn’t mean that you should. These loans can be really easy to get. They typically don’t require a credit check, so you can literally get loans from several different lenders in an afternoon. That can present a real challenge for people to manage, especially if you’re new to credit.
BNPL lenders apps make it possible for you to use these loans to buy more different items than you’d imagine. In experimenting with these loans, I’ve literally bought a two-pack of shaving cream and a Mother’s Day card with one. Again, you shouldn’t do that, but it is important to understand that it is possible.
You generally have to pay every two weeks. That’s different from your usual monthly cadence of paying installment loans, so it is important to be aware of that before you sign up. If you end up paying late, you could get hit with a late fee.
Don’t get one if you think you might have to return the item. BNPL purchases are notoriously challenging to return. Different lenders have different policies, and these policies are evolving, but some may even require you to finish paying off the loan before you can get a refund. If you think a return might be needed, do yourself a favor and use a credit card.
On-time payments don’t help your credit. This one is very important to understand. Paying your BNPL loans on time generally doesn’t help your credit the way a good payment history on a credit card does. It likely will someday, but lenders, credit bureaus and credit scoring companies are still working out the details of how exactly these loans will be incorporated into credit scores. In the meantime, anyone expecting to have these loans help their credit is going to be disappointed.
Ultimately, BNPL is just another financial tool, like a credit card or auto loan or mortgage. Used wisely, it can be an amazing asset, helping you extend your budget and making your family’s financial life a little bit easier. However, they also come with very real risk, so be sure to proceed with caution.
Have you used a buy now, pay later loan?
If you have, I’d love to hear your experience. Reply to this email or comment below and let me know your perspective.
Have a great day!
Matt