Sarah Pfefferle had already saved $16,000 for her future home by the time she was 18. Then she started using buy-now, pay-later (BNPL) products and “ruined everything”.
In only two months, the Chicago native racked up $5,000 in debt across three of the instalment loan companies.
The ballooning balances drained much of her savings and prompted her to seek help from a financial adviser. But the damage was done: Ms Pfefferle’s credit score dropped to 580 from 720 after she closed her accounts.
Ms Pfefferle, now 21, said her plan to buy a house has been set back at least two years. And she fears she won’t be able to get a mortgage.
“I have little to no money saved for emergencies,” she said. “It’s a vicious cycle.”
Ms Pfefferle is hardly alone.
Australian company Afterpay popularised the concept of buy now, pay later as a new spin on layaway plans with an instant gratification twist. The financial products typically let consumers pay for purchases in four instalments, with the promise of little to no fees, no interest and quick credit approvals.
That enticed young consumers with little credit history, who saw BNPL as an alternative to credit cards for the TikTok generation.
The pioneering companies, including Afterpay, Klarna and Affirm, launched with hip clothing retailers, struck brand deals with social media influencers and quickly became ubiquitous on apps and online checkouts.
They make most of their money by charging merchants a fee each time a consumer uses the product at checkout.
The short-term loans surged in popularity during the Covid-19 pandemic, thanks to consumers who were flush with extra cash and limited to shopping online.
Five major BNPL companies originated 180 million loans totalling $24.2 billion in 2021, a near 10-fold increase from 2019, according to a report from the US’s Consumer Financial Protection Bureau (CFPB).
The promise of interest-free payments made BNPL products particularly attractive to credit card-wary Gen Z.
However, BNPL is “only free when you follow all the rules”, said Ed Mierzwinski, a senior director of the US Public Interest Research Group.
The BNPL companies have been plagued by delinquency this year as inflation bites.
The CFPB found that younger borrowers are more likely to have loans in “derogatory status”, meaning they’re either in default or sent to a third-party debt collector.
Roughly 11 per cent of borrowers paid at least one late fee in 2021, an increase from the prior year. And 18 per cent of consumers aged 18 to 29 fell behind on payments in 2021, according to a Federal Reserve report.
“The marketing here is counting on a younger, perhaps less financially sophisticated spender because they haven’t been in the financial marketplace as long,” Mr Mierzwinski said.
In emailed statements, Afterpay, Klarna and Affirm all said they provide more consumer safeguards than credit cards and emphasised that they don’t charge interest and either don’t charge late fees or cap them.
For Gabrielle, who asked that her last name be withheld, it didn’t feel like she was spending money because her BNPL payments weren’t due for weeks. And the more she spent, the more credit she got.
More than a year later, the 19-year-old was left with a heap of new clothes, make-up and $3,500 in debt with balances across several BNPL apps.
She was eventually able to pay off her balances in April after seeking help on a Reddit forum, where many users said BNPL apps fuelled their shopping addictions.
For some, falling behind on BNPL payments could have long-lasting consequences.
Briana Gordley, 24, said she didn’t understand the hidden pitfalls of BNPL when she first encountered an Afterpay advertisement at the clothing retailer Forever 21 in 2016.
Paying her own way through college and rejected by credit card providers, the then-freshman believed the financial offering was a safe way to pay for things she couldn’t afford with her part-time job.
Accountability and responsibility should be a two-way street between consumers and businesses
Briana Gordley,
consumer
Only 18 months later, the Texas native had spent $1,500 across three platforms, and three of her loans had been sent to collections. She was forced to turn to her parents for help.
And even then, it took her two years to finally build a savings account and start paying down her student loans.
While Ms Gordley’s late payments didn’t affect her credit score, that may not be the case for borrowers in the future.
Major credit bureaus like Equifax and Experian have said they’ll start including BNPL purchases on consumers’ credit reports, although not all lenders are reporting data to them yet.
Loans sent to debt collectors can also be reported, which can hurt consumers’ credit scores.
Ms Gordley told the Senate Banking Committee in September that BNPL targets younger borrowers who are only learning how to manage their own finances, and said the products verge on being “predatory” without strong disclosures and consumer protections.
“I understand and believe in personal accountability and responsibility for the choices I made,” Ms Gordley said. “But accountability and responsibility should be a two-way street between consumers and businesses.”
UAE currency: the story behind the money in your pockets
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
The Settlers
Director: Louis Theroux
Starring: Daniella Weiss, Ari Abramowitz
Rating: 5/5
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
Power: 464hp at 5,200rpm
Torque: 790Nm from 2,000-3,600rpm
Transmission: 10-speed auto
Fuel consumption: 11.7L/100km
On sale: Now
Price: From Dh590,000
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
How much of your income do you need to save?
The more you save, the sooner you can retire. Tuan Phan, a board member of SimplyFI.com, says if you save just 5 per cent of your salary, you can expect to work for another 66 years before you are able to retire without too large a drop in income.
In other words, you will not save enough to retire comfortably. If you save 15 per cent, you can forward to another 43 working years. Up that to 40 per cent of your income, and your remaining working life drops to just 22 years. (see table)
Obviously, this is only a rough guide. How much you save will depend on variables, not least your salary and how much you already have in your pension pot. But it shows what you need to do to achieve financial independence.
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Essentials
The flights
Return flights from Dubai to Windhoek, with a combination of Emirates and Air Namibia, cost from US$790 (Dh2,902) via Johannesburg.
The trip
A 10-day self-drive in Namibia staying at a combination of the safari camps mentioned – Okonjima AfriCat, Little Kulala, Desert Rhino/Damaraland, Ongava – costs from $7,000 (Dh25,711) per person, including car hire (Toyota 4x4 or similar), but excluding international flights, with The Luxury Safari Company.
When to go
The cooler winter months, from June to September, are best, especially for game viewing.
How much do leading UAE’s UK curriculum schools charge for Year 6?
- Nord Anglia International School (Dubai) – Dh85,032
- Kings School Al Barsha (Dubai) – Dh71,905
- Brighton College Abu Dhabi - Dh68,560
- Jumeirah English Speaking School (Dubai) – Dh59,728
- Gems Wellington International School – Dubai Branch – Dh58,488
- The British School Al Khubairat (Abu Dhabi) - Dh54,170
- Dubai English Speaking School – Dh51,269
*Annual tuition fees covering the 2024/2025 academic year
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
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UAE currency: the story behind the money in your pockets
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
The biog
Favourite film: Motorcycle Dairies, Monsieur Hulot’s Holiday, Kagemusha
Favourite book: One Hundred Years of Solitude
Holiday destination: Sri Lanka
First car: VW Golf
Proudest achievement: Building Robotics Labs at Khalifa University and King’s College London, Daughters
Driverless cars or drones: Driverless Cars
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
Meydan racecard:
6.30pm: Al Maktoum Challenge Round 2 (PA) Group 1 | US$75,000 (Dirt) | 2,200 metres
7.05pm: UAE 1000 Guineas (TB) Listed | $250,000 (D) | 1,600m
7.40pm: Meydan Classic Trial (TB) Conditions | $100,000 (Turf) | 1,400m
8.15pm: Al Shindagha Sprint (TB) Group 3 | $200,000 (D) | 1,200m
8.50pm: Handicap (TB) | $175,000 (D) | 1,600m
9.25pm: Handicap (TB) | $175,000 (T) | 2,000m
10pm: Handicap (TB) | $135,000 (T) | 1,600m
UAE currency: the story behind the money in your pockets
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UAE currency: the story behind the money in your pockets
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
Tearful appearance
Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday.
Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow.
She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.
A spokesman said her upset demeanour was due to a personal matter.
