Food inflation remains high, prompting consumers to buy now and pay later for groceries and takeout.

Money is tight and food prices are rising, so more and more Americans are choosing buy now, pay later options to stay afloat.

Approximately 15 million consumers (6.5% of the U.S. population) reported using BNPL installment loans to pay for groceries and manage their weekly food costs last year, according to a PYMNTS Intelligence study. Of these, approximately 5.4% of households using BNPL to purchase groceries were low-income households.

That meant there were still a small number of high-income earners, those earning more than $100,000 a year, who were using the popular “four-payment” installment loans to buy food each month.

Experts say this trend is likely to continue this year as consumers of all income levels continue to grapple with soaring prices.

“As the cost of living rises, people are finding it harder to manage their budgets and cover their expenses,” attorney and personal finance expert Erika Kullberg told Yahoo Finance. “BNPL therefore provides a short-term solution by allowing shoppers to spread out their payments over time.”

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BNPL can also be used for take-out food, so why pay in advance?

Americans found some relief in the grocery store this month, as the latest inflation numbers showed food prices were flat for most items.

Still, although food prices moderated in February, they were still 22.3% higher than 2020 levels. Rising costs are taking a toll on households of all income levels.

For example, half of consumers making more than $100,000 said they cut back on unnecessary spending at the grocery store. More than 60% of people with incomes under $100,000 said they needed to cut back on spending due to high food costs.

He said more people are switching to more affordable retailers to save money at checkout. For example, shopping at Target (TGT) instead of Whole Foods. Some people decide to buy lower-quality food, such as ditching organic produce for more affordable options.

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Enjoying a meal at a restaurant has also become expensive. The out-of-home food inflation index rose 4.5% in February compared to the same month last year.

Enter BNPL.

One X user said, “I finally paid for my Uber Eats order from January.” tweeted. The Chicago resident said he ordered takeout for $44.88 and paid in four equal installments through BNPL.

Another woman told X that she had taken out a popular four-payment loan. $11.01 Buy at Juanchos Tacos. This means that he will be paid in April for the meals he ate in early March.

“Especially younger generations are used to digital transactions and value convenience. Why wouldn’t they?” Kullberg said. “It’s quick, easy, and requires very little thought.”

But not everyone is taking advantage of BNPL, forcing major restaurant chains like McDonald’s (MCD) to go back to square one to attract consumers.

“Some consumers are simply choosing to eat at home more often,” McDonald’s Chief Financial Officer Ian Bowden said during an investor conference Wednesday. “This is clearly important as consumers try to cope with pocket-hardening inflation across all spending areas.”

At least 90% of McDonald’s restaurants in the United States offered breakfast or meal sets for $4 or less. Borden also noted that McDonald’s plans to offer more deals this year to attract consumers, especially those hit hardest by inflation.

“As consumers become more selective, attractive offers at the right price points will attract them,” Borden said. “I think consumers in 2024 will focus more on affordability.”

One-third of high-income earners live paycheck to paycheck.

When it comes to who is struggling under the weight of soaring prices, it’s almost everyone.

As of January, more than half of Americans said they were living paycheck to paycheck, a sign that rising costs of living may be taking a toll on consumers’ financial security. According to a PYMNTS Intelligence report.

The share of living wages varied across income groups and generations.

At least three-quarters of those earning less than $50,000 a year and about two-thirds of middle-income earners between $50,000 and $100,000 were living on their January paycheck. On top of this, 36% of those making more than $200,000 said they struggle to make ends meet between paychecks.

Those who did not use BNPL relied on credit cards to pay for groceries. One-third (31%) of all U.S. consumers said they used a traditional credit card to purchase groceries in February, according to PYMNTS data.

“This reflects an accelerating shift in how consumers think about spending and credit,” the researchers said.

BNPL can be a “double-edged sword”

While it is convenient to take out short-term, four-payment loans to purchase groceries, borrowers should be careful not to rely too heavily on these installment loans.

First, you don’t want to risk spending too much and not being able to pay off your other debts.

“Using BNPL for small purchases may seem harmless at this point, but you need to make sure you don’t let it get away from you,” says Kullberg. “It’s easy to add up these small purchases and end up racking up unnecessary debt.”

Second, BNPL is generally interest-free for small purchases, but larger loans may be subject to interest charges. Although BNPL is not a regulated market, missed payments will eventually go to collections and have a significant impact on your credit rating.

Kullberg added: “If used responsibly, BNPL can be a great resource. But it is a double-edged sword and can quickly turn against you if not used properly.”

Gabriela Cruz Martinez I’m a personal finance and housing reporter for Yahoo Finance. Follow her on X @__Gabriela Cruz.

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