The proportion of consumers with new BNPL accounts who need help tackling unsustainable debt has increased by over 50% since 2021, according to the first study by the Achieve Center for Consumer Insights
SAN MATEO, California., September 22, 2022 /PRNewswire/ — The rapid growth of buy now, pay later (BNPL) financing has had a cascading effect on consumer debt, according to a new study by Achieve, the leader in digital personal finance.
The full study (available here) found that a growing number of already debt-stressed individuals are using BNPL funding to expand their available credit limits before ultimately needing help to manage unsustainable levels of debt.
Achieve Center for Consumer Insights
The study is the first in a planned series from the new Achieve Center for Consumer Insights, an ongoing initiative that will use the team of Achieve digital personal finance experts to provide insight into the condition of Achieve members, with a specific focus on data and emerging trends in personal credit, consumer credit, and home equity finance.
In addition to sharing insights from Achieve’s proprietary data and analytics, the Achieve Center for Consumer Insights intends to share in-depth research, tailored data, and thoughtful commentary to support Achieve’s mission of helping everyday people be on the journey and to stay on this path into a brighter financial future.
“The launch of the Achieve Center for Consumer Insights alongside the Debut of the new brand Achieve and our expanded range of digital personal finance offerings reflects our commitment to supporting every step of our members’ financial journey. We look forward to educating consumers on the state of their finances and keeping them abreast of economic developments affecting household balance sheets,” said Achieve Co-Founder and Co-CEO Brad Straw. “Additionally, we hope the data and research produced by the Achieve Center for Consumer Insights will foster thoughtful dialogue among technology and financial services professionals, academic and advocacy groups, policymakers and other stakeholders.”
Impact of BNPL on consumer debt
away June 2022the percentage of Achieve Resolution members with BNPL accounts on their credit reports has increased from 58% January 2021. While the segment of settlement members with BNPL tradelines is still relatively small, it is also likely an underrepresentation of the overall reach of the BNPL industry as very few BNPL transactions are currently reported to the big three credit bureaus.
Many BNPL users tend to use this funding to expand their credit limits on existing credit cards and other accounts according to Achieve data – although BNPL is often touted as a product designed for consumers who want to avoid credit cards and other traditional forms of credit.
Members with BNPL loans on their credit reports have more open tradelines on their credit file than members without BNPL loans. They also have more tradelines overall — which include both current tradelines and previous accounts that were closed less than 10 years ago — reported on their credit files. Achieve members with BNPL accounts had slightly higher credit card utilization rates than Achieve Resolution members without. They also had 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 BNPL industry’s reach comes at a time of historic inflation and rising interest rates, which are taking a toll on household finances,” said Achieve Co-Founder and Co-CEO Andrew Hauser. “Buy now, pay later may appeal to consumers looking for an interest-free option to pay for purchases over time.
The average balance in Achieve Resolution members’ BNPL accounts has declined since early 2021, reflecting the widespread availability of BNPL as a digital payment option at both virtual and physical outlets. in the June 2022nearly 50% of Achieve Resolution members with at least one BNPL account were Millennials and about a third were Gen X members. Achieve’s findings reflect a recently published study Study by the Consumer Financial Protection Bureauwhich highlights the growth in BNPL loan volume and consumer late fees.
Other key takeaways from Achieve Resolution
Developing financial difficulties : Medical expenses have become the number one reason consumers seek Achieve’s help with debt, reflecting an ongoing trend that started in early 2021 (see Figure 2). Lower income and job losses continue to account for much of member hardship, but have declined over the same period.
generation change: Millennials and Gen Z members seeking debt help through Achieve Resolution have since grown January 2021 , while the proportion of silent generation and baby boomer members is declining (see Figure 3). There are strong parallels between Gen Xers and Millennials on many key credit indicators, although the median age of Gen Xers enrolled in Achieve Resolution is 15 years older than Millennials (see Figure 4). The two generations have comparable credit scores, household incomes, and credit histories, however, Gen Xers have more credit reporting businesses on average. In addition, the three youngest generations all have higher median household incomes than Achieve Resolution members from the Silent and Baby Boomer generations.
Key Findings of Achieve Personal Loans
Dealing with Debt: Debt consolidation and credit card refinancing are the primary reasons Achieve members receive personal loans , which has consistently accounted for more than half of all new lending since the beginning of 2021 (see Figure 5). However, the proportion of members using personal loans to finance major purchases is increasing, accounting for 19% of loans received June 2022.
Personal credit profile: Obtaining a Personal Loan Members had an average of 11 open tradelines when applying for a Personal Loan June 2022. Loan amounts range from less than $10,000 too over $35,000with an average initial loan balance of just over $20,000. Key credit metrics for Achieve Personal Loans members remain largely unchanged from the prior year, with the exception of average creditworthiness, which declined slightly in 2017 June 2022 (see Figure 6).
Make way for millennials: Millennials account for a growing share of credit volume , and the proportion of Achieve staff loan members from the Baby Boomer generation is declining, reflecting a similar trend in Achieve resolution. Lending for Gen Z members was almost non-existent in 2021, but now accounts for 2% of transactions June 2022 (see Figure 7).
Key Findings from Achieve Home Equity Loans
Secure access to home equity: Members who received an Achieve home equity loan to consolidate unsecured debt June 2022 save on average $669 per month compared to their 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 down debt or increase their cash reserves without jeopardizing their long-term homeownership goals. Members who received a HELOC from Achieve to consolidate their unsecured debt June 2022 average saved $669 per month in payments compared to their previous monthly debt obligations (see Figure 8).
Monthly Savings: The average starting balances for Achieve Home Equity loans ranged from $43,000 and $59,000 out January 2021 to 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 debt levels, interest rate fluctuations, and other individual and market-based factors. Since January 2021Reaching home equity loan members have reduced their debt payments by an average $746 per month.
Improvement of creditworthiness: Members typically see their credit scores improve, in addition to improving their monthly cash flow after debt consolidation with an Achieve Home Equity loan (see Figure 10). Achieve Home Equity Loans are structured as fixed-rate, fully drawn HELOCs that allow members to continue to access their home’s equity as needed throughout the drawing period.
The full study, with graphs and data, can be viewed on Achieve’s website or downloaded as a PDF of the report here.
Reach is a leader in digital personal finance. Our solutions help everyday people get on and stay on the path to a brighter financial future with innovative technology and personalized support. Leveraging proprietary data and analytics, our solutions are tailored to every step of a consumer’s financial journey, spanning personal loans, home loans, debt help, and financial tools and education. Achieve is headquartered in San Mateo, California and has more than 2,700 dedicated employees across the country with hubs in California, Arizona and Texas. The company is regularly recognized as the Best Place to Work.
The data presented above is based on a representative sample of over 100,000 members who have taken advantage of the Achieve Resolution, Personal Loan and Home Equity Loan offerings January 2021 to June 2022. The data and results represent the 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 No. 227977); Freedom Resolution (NMLS ID 1248929); and Lendage, LLC d/b/a Achievement Loans (NMLS ID #1810501).