Rise of Installment Financing Reshapes Consumer Credit Landscape

The consumer credit landscape is evolving with the proliferation of installment financing options, akin to "buy now, pay later" (BNPL) services, which allow consumers to split purchases into manageable payments, without accruing significant interest. Popularized during the pandemic, and facilitated by the convenience of online shopping and economic stimuli, BNPL offerings from companies like Afterpay, Affirm, and Klarna have surged in popularity. Despite a slowdown in adoption post-pandemic, BNPL services are continuing to reshape how consumers manage their spending habits and access credit.

Traditional financial institutions, recognizing the appeal of installment plans, have also integrated similar features into credit cards, in an attempt to attract and retain customers. For instance, American Express introduced its "Plan It" program for travel bookings and other purchases, offering competitive terms compared to standalone BNPL services. This approach appeals particularly to higher-income consumers seeking flexibility in managing larger expenses, while potentially avoiding high-interest charges. However, concerns persist about BNPL services' appeal, primarily to financially vulnerable demographics and their impact on broader credit usage trends, highlighting ongoing shifts and challenges within the consumer credit market.

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