Dive Brief:

• Homeowners often turn to buy now, pay later when their credit cards are maxed out or their budgets are tight, according to the results of a study from the JPMorgan Chase Institute, an economic think tank backed by the largest U.S. bank.
• The research, published March 3, reviewed anonymized bank account spending and data from credit bureaus on millions of homeowners over several years and found that people who are paying mortgages, or are getting ready to buy their first home, are most likely to use BNPL when they are financially stressed.
• Homeowners and first-time home-buyers tend to "use buy now, pay later more as a liquidity valve than a convenience tool," said Makada Henry-Nickie, the institute's housing finance research director.

Dive Insight:

Researchers used a cash-flow metric to determine how financially strapped homeowners are. The study analysis, which looked at buy now, pay later spending and other borrowing by about 4.5 million homeowners, concluded that "BNPL use is most likely in the months when homeowners have less spare cash, after covering essential expenses and other debts," a summary of the research said.

The analysis tracked their payment methods from 2019 and 2023. The research focused on the traditional pay-in-four installment loans which are paid back over several weeks and do not accrue interest. 

“Since mortgages are usually the largest and most difficult expense to adjust, we focus on how mortgage borrowers use BNPL to manage cash flow and meet their obligations over time,” the summary said. For example, "a 10% decline in deposits is associated with a 1.5% increase in annual BNPL spending for Federal Housing Association borrowers.”

Among financially stressed homeowners and first-time home buyers, the use of buy now, pay later services rose and credit card use decreased, the research found. 

In the year leading up to their first purchase of a house, future homeowners' who frequently use credit cards saw the use of that payment method decline between 12% and 13%, according to the study. 

However, among frequent buy now, pay later users, BNPL spending rose between 34% and 38% in the year before a home purchase, the study found.

"At the same time, you see buy now, pay later increase as a share of total spending," Henry-Nickie said in an interview.

However, that doesn't necessarily mean homeowners are always using BNPL in lieu of credit cards, she stressed.

"There are some who are using it as a convenience tool," Henry-Nickie said, while others may resort to buy now, pay later when credit cards aren't an option.

"When homeowners don't have a lot of cash left over, that's when they're more likely to use BNPL for the first time," said Chris Wheat, president of the JPMorgan Chase Institute.

Longer-term, interest-bearing installment loans increasingly offered by the buy now, pay later industry were excluded to avoid mixing day-to-day purchases with financing preferences, the summary said.

The Financial Technology Association, which counts buy now, pay later customers among its members, pushed back on some of the study’s findings. An association spokesperson, for example, referred to a June study from the Consumer Financial Protection Bureau that concluded 98% of BNPL users repay their loans in full to stress that those users are able to pay their bills.

"It should come as no surprise that people across all income brackets, especially those with less disposable income, are turning to less expensive options to pay for purchases,” the spokesperson, Miranda Margowsky, said in an emailed statement. “BNPL is a valued payment option with no revolving balances, no hidden fees, and fixed repayment dates, which millions of Americans are using responsibly to meet their financial needs."

Researchers said the JPMorgan Chase study's purpose was to provide policymakers with the information they need to make regulatory decisions about the buy now, pay later industry.

“We wanted to use our data to think about this group in particular, but we also wondered out loud if these patterns are consistent with other consumer groups," Henry-Nickie said. "And largely, they are."

Other research has shown negative effects of buy now, pay later use. A Johns Hopkins University study published in December found that BNPL spending is associated with poor mental health, although industry groups pushed back on researchers’ findings.

Government agencies have scrutinized the impact of the BNPL industry on homeowners. 

In June, the Department of Housing and Urban Development issued a request for public comment on the issue, posing nearly two dozen questions regarding the ways buy now, pay later services affect borrowers' overall financial situation. The agency is seeking to assess the spending tool’s impact on housing payments and the market’s overall stability.