Loan scam: Buy-first and pay-letter schemes drive youth into debt trap

Due to the Buy First Pay Letter (BNPL) scheme, youth are getting trapped in debt trap. Due to this their CIBIL score is also getting worse. After Corona, the raft of small loan companies has burst. Young people are buying more than their income in the lure of interest-free loans with attractive and easy terms.

According to a survey by the Financial Technology Association, 40% of BNPL users borrow from multiple companies. About one-third of people spend more than their income and cannot repay loans. Something similar happened to 18-year-old Sara Ferrell. Sara had saved some money to buy a house, but everything went to waste when she started buying goods under the scheme.

Sara, a resident of Chicago, took a loan of approximately 4 lakh rupees in 3 installments for two months. A ballooning balance added to the company's unexpected medical expenses. This amount increased. A financial advisor advised him to close the account, but by then his credit score had dropped from 720 to 580. Now he will not be able to fulfill his dream of buying his own house for two years.

According to a report by the Federal Reserve, 18 percent of consumers between the ages of 18 and 29 were unable to pay their debts in 2021. 11 percent had delayed at least one installment payment.

BNPL: 2 lakh crore loan given in 2021

According to a report by the Consumer Financial Protection Bureau, 5 BNPL companies gave loans worth around Rs 2 lakh crore to 18 crore people in 2021. Which is 10 times more than 2019. Brianna Gordley, 24, said people are unaware of BNPL's hidden losses.