Schufa reports boom in "buy now, pay later" loans

German consumers are making increasing use of small loans – and no longer just young people who shop online. In contrast, the demand for larger loans is decreasing. This is according to the latest Risk and Credit Compass published by Schufa on Tuesday, which provides facts on the credit and payment behavior of Germans over the past year. The total number of new installment loans taken out remained relatively constant in 2023, with an increase of one percent. At the same time, however, small loans are once again in much greater demand: the number of installment loans under 1000 euros has risen from a good 3.8 million in 2022 to around 4.4 million in 2023, i.e. by around 14%.

Almost every second new installment loan that Schufa recorded last year falls into this category of comparatively small sums. The credit agency cites the controversial "buy now, pay later" (BNPL) offers in e-commerce as one of the reasons for this. With these, payment service providers such as Klarna or PayPal often take over the processing and offer corresponding financing options.

Up to now, small loans have been particularly popular with younger people. Demand has also remained stable in the 20 to 24 age group. At the same time, however, BNPL is also gaining ground among the middle age groups: Among 35- to 39-year-olds, 40- to 44-year-olds and 45- to 49-year-olds, the number of current installment loans under 1,000 euros shot up by around 30 percent in each case.

However, it is not only consumer advocates who regularly warn against the tempting "buy now, pay later" approach. "Time and again, those affected lose track of which bills are due and when," points out the North Rhine-Westphalia consumer advice center. Especially as the payment model often conceals a fee-based credit agreement from a third-party provider. Consumers could thus "end up in a cost spiral with high interest rates and costs". In the worst case, there is a risk of over-indebtedness. Young adults in particular are tempted to make unplanned purchases in installments. Posts on social media such as TikTok have already made headlines because young people proudly announce "how much consumer debt they have already accumulated".

Online shopping on credit is not a game

"It's not a game," says Wolfgang Schuldzinski, CEO of the NRW consumer advice center, emphasizing the consequences of gamification. "Nobody should underestimate this. The simple payment options tempt people to make impulse purchases. Then the money is missing elsewhere."

BNPL can "become a consumer trap and a debt trap ", the AOK also knows. Excessive online shopping in particular, which the rest of the family is often unaware of, can sometimes lead to shopping addiction. The Federal Ministry of Consumer Protection also sees online installment financing as a risk factor for over-indebtedness.

In a survey conducted last year by the Federation of German Consumer Organizations (vzbv), 19 percent of internet users in Germany stated that they were barely able to repay loans due to the rising cost of living. Among 16 to 29-year-olds, the figure was as high as 31 percent. Schufa itself locates most people with "payment problems" in Bremen and the fewest in Bavaria.

Meanwhile, EU legislators have tightened the rules with a new consumer credit directive. In future, a credit check will also be required for loans of less than 200 euros. This means that BNPL will be covered here for the first time. The directive still has to be transposed into national law by November 2025, which could be tight in view of the new elections.

Based on an expert opinion, the vzbv is calling for the following: As part of the credit check, banks would have to check consumers' income and regular expenditure for all types of credit. Before processing the account information, however, the account-holding bank should summarize the data in categories to protect sensitive consumer information. Every credit decision must be presented in a comprehensible manner.

(vbr)