On February 14, the Federal Reserve Bank of New York (NY Fed) published a blog post evaluating different households’ use of buy now pay later (BNPL) products, which it generally described as “loans that are payable in four or fewer installments and carry no finance charges.” To understand BNPL usage and its relationship with consumers’ financial situations, the NY Fed conducted a study which revealed distinct usage patterns between the financially fragile and the financially stable.

The study revealed that financially fragile individuals, or individuals who have a credit score below 620, who have been declined for a credit application in the past year, or who have fallen 30 or more days delinquent on a loan in the past year, typically use BNPL to make frequent small purchases when compared to financial stable individuals. The study also found that using BNPL often leads to repeat transactions, indicating a potential trend towards repeat use of the product, particularly among those facing credit challenges.

The study also found that consumers’ motivations for using BNPL differ. Financially stable individuals often cite zero interest as a key advantage, while the financially fragile prioritize ease of access and convenience. The NY Fed summarized that BNPL usage among financially fragile individuals resembles using a credit card for medium-size, out-of-budget purchases, while financially stable users tend to make fewer purchases with a focus of avoiding interest on high-priced items. The NY Fed noted, however, that there is evidence of misunderstanding among users, such as the belief that BNPL helps build credit, concluding that “those with this view may be better off using a credit card.”