Pay-Later Loans Fuel Overspending This Holiday Season, Raising Consumer Debt Concerns
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Pay-later loans like those from Affirm and Klarna are fueling record holiday shopping, but may encourage overspending and debt, especially among younger and lower-income consumers.
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These loans aren't captured in traditional consumer credit data, representing a "phantom debt" blindspot that could mask financial risks.
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Over 40% of pay-later loan users have recently overdrawn their bank account, suggesting financial strain.
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Pay-later loans sidestep consumer protections like the Truth in Lending Act and often aren't reported to credit bureaus.
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If the economy declines, more borrowers may struggle to repay pay-later loans, pushing them into default.