Payday Loans Can Turn Holiday Spending into a Debt Trap

Consumers Should Avoid Loan Shark Lenders

Andy Spears
3 min readNov 16, 2021


Consumer advocates over at DebtHammer are warning that excessive borrowing to finance this year’s Holiday spending could lead to a debt trap that results in a lump of coal that lingers long after the stockings are put back in storage.

According to a recent survey conducted by DebtHammer, a majority of Americans plan to go into debt to finance Holiday shopping and gift giving. Specifically:

Though more than 78% say they have some savings set aside for holiday spending, 58% said they expect to take out a payday loan or other short-term loan to pay for their holiday celebrations, and 66% expect to use a “buy now, pay later” plan like Afterpay, Klarna or Affirm to help spread out their expenses.

While typical payday lenders can carry excessive interest rates — sometimes 400% or more — buy now, pay later services can also be highly problematic.

Lauren Saunders of the National Consumer Law Center (NCLC) warns that some BNPL products focus on consumers who are not likely to be able to repay the debts on time. These consumers then incur significant late fees that boost the revenue earned by the service provider.

BNPL providers do not directly consider the consumer’s ability to repay. Even if they check do a soft check of credit reports, those reports may not reveal BNPL debt. Industry analysts have warned that BNPL providers may underestimate consumers’ debt levels and may be headed for even higher default rates.

In fact, it’s worth noting that buy now, pay later services can also negatively impact a consumer’s credit. This means borrowing will become more expensive over time.

“While the record of on-time payments can boost your credit, you could see a blow to your score from using the [BNPL] service,” says Leslie Tayne, founder and managing director at Tayne Law Group. “Every purchase you make with a POS loan is considered a separate account on your credit report that gets closed once you pay off the balance. Since these loans are short-term (generally six weeks), they can bring down the average age of your credit history considerably — especially if you’re a regular borrower.”

The Risks of Buy Now, Pay Later Services | by Andy Spears | Nov, 2021 | Medium



Andy Spears

Writer and policy advocate living in Nashville, TN —Public Policy Ph.D. — writes on education policy, consumer affairs, and more . . .