Eric Phesay first used Affirm, a buy now, pay later app, in 2024 to buy a PlayStation, opting for a 12-month payment plan because he didn’t have enough money for it in his debit account. After that experience, Phesay said, he considered it an option for wants rather than needs.
“I don’t use credit cards; I just use the loan feature,” said Phesay, 23, who works part time at a dog-treat bakery in Boston. “It’s less of a commitment for the normal buy now, pay later, at least from what I understand.” Even though BNPL doesn’t give him points to build his credit score like a major bank, he said, he still prefers the simpler, easier access.
BNPL’s ease of access, flexibility and interest-free payments over time have helped attract more users, and its business has sharply grown in recent years. While users’ incomes and spending habits vary, they are shifting from using it to pay for needs to discretionary purchases. But BNPL carries a big risk: once they make this transition, their monthly budget becomes tethered to a cycle of relying on short-term loans.
Credit cards and BNPL serve fundamentally different consumer needs. Credit card customers tend to be older and more affluent, often using cards for rewards. BNPL customers skew younger and more mass‑market, using installment plans to manage cash flow and avoid interest.
“BNPL is becoming a permanent part of the consumer credit ecosystem,” said Sean Gelles, a senior director at JD Power. “But it is unlikely to fully displace revolving credit.”
Economists say they are deeply concerned about the implications of BNPL.
“BNPL debt is on the rise,” said Tara Alderate, senior director of enterprise learning at Money Management International. “It’s easy for BNPL payments on different products to add up quickly, increasing the amount of money a consumer owes each month.
“The business model that the BNPL companies use is, they charge a higher merchant fee to the businesses that sign up to take the buy now, pay later,” said Chuck Bell, programs director of advocacy for Consumer Reports.
As consumers’ BNPL use has increased, the rate at which browsers become buyers have also risen. More small-business owners are accepting BNPL payments, even though credit card companies charge them less in fees, because they increase sales volume.
Bell said BNPL companies were earning more in fees from merchants than from consumers, helping propel growth with low cost to use and convenience.
While BNPL companies say they don’t charge interest the way credit cards do, if consumers miss a payment, suddenly they face steep interest costs and fees.
According to a Lending Tree survey, more than 41 % of BNPL users said they made one late payment in the past year. Economists are concerned about this “phantom debt” – stacking multiple loans. Many BNPL providers do not report to the major credit bureaus-the agencies that decide your credit score, these short-term obligations often remain invisible to traditional lenders.
Alderate warns that consumers should look at the big picture and how each BNPL payment option will fit into their overall budget, then make necessary adjustments to live within their means while still saving for emergencies and financial goals.
Phesay says he avoids those risks by spending his paychecks on everyday necessities and student loans. But when it comes to entertainment, he said, he feels it is more manageable to use BNPL installment payments.
He has stacked up payments once and said he tried not to use more than two BNPLs at a time.
“Without BNPL service, I’d find myself probably spending less on entertainment,” he said. “It would shift me back to spending more on necessities because I mostly will just use it to boost morale to save more money.”
The pandemic brought a combination of increased financial uncertainty, rapid growth in e-commerce and heightened sensitivity to interest costs. BNPL satisfies consumers on that point by offering structured and short-term payment relief without credit card interest, which makes them temporarily affordable.
BNPL use in the U.S. increased 50% from 2021 to 2024, according to Capital One Shopping Research.
Banks clearly recognize the risk of losing consumers to BNPL companies. Large lenders like Chase, American Express and US Bank have already launched BNPL solutions—either embedded in cards or as their separate installment products—to retain customers.
“Trust is a primary decision driver in this space,” Gelles said. “Partiecularly among younger customers, the core demographic for BNPL products—which gives banks a meaningful opportunity to compete effectively in this market.”
Elexa Rodriguez, a college student who lives in Los Angeles, has used Klarma to buy several concert tickets in the last two years. She said she usually pays with BNPL for bigger purchases over $200, especially for entertainment.
Rodriguez said she knew how to avoid problems because BNPL warns consumers about the late payment by email. When she once forgot to pay the payoff amount and had a card locked, she received an email notifying her of a late fee policy. But if users are lagging on payments, she said, they don’t have to worry about it affecting their credit score.
“As a college student, I mostly don’t afford a lot of money at once,” she said, “So dividing payment into four or even monthly does help a lot to manage my purchase.”
