What’s new with buy now, pay later? A lot

My favorite saying about credit cards pertains to buy now, pay later as well. And it goes like this: These payment methods are like power tools. They’re really useful or really dangerous depending on how you use them.

We see evidence of that in Bankrate’s 2025 Buy Now, Pay Later Survey, with about half (49 percent) of buy now, pay later (BNPL) users reporting at least one problem using these services. Some 24 percent say they have overspent using BNPL, 16 percent missed a payment, 15 percent regretted a purchase and 14 percent had trouble with a return or refund.

Have a question about buy now, pay later, credit cards or another personal finance topic? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.

There’s a lot that we don’t know about BNPL, since the industry has only recently begun more widespread reporting to credit bureaus. While these lenders generally have fairly low delinquency rates, there’s anecdotal evidence that some users are getting carried away with their purchases. I have also heard that credit counseling agencies are fielding more inquiries from consumers who are in over their heads with BNPL.

Of course, much of the same pertains to credit cards, as evidenced by the power tools analogy. It’s common to hear about credit card users who slid down the slippery slope of debt, perhaps starting with some retail therapy or an emergency expense or simply the fact that day-to-day costs are high, and many paychecks aren’t keeping pace.

The economy contracted slightly in the first quarter, tariffs are roiling markets and layoffs are spiking. This is a risky environment for unsecured lending, as evidenced by the fact that Klarna (a leading BNPL lender) recently delayed its long-awaited initial public offering. The BNPL industry is venturing into uncharted waters.

Recession fears are rising

Bankrate surveyed close to two dozen leading economists in late March, and collectively, these experts estimated the odds of a recession over the next 12 months at 36 percent, up from 26 percent just three months prior. J.P. Morgan analysts are more downbeat, pegging the probability of a 2025 recession at 60 percent.

The broader economy is deeply important to buy now, pay later lenders because the industry depends on consumer spending — and consumers paying lenders back, which becomes more difficult when times are tough. Further, most BNPL lenders have never really been recession-tested.

Affirm, for example, was founded in 2012. Its competitor Afterpay was born in 2014. PayPal Pay in 4 debuted in 2020. That means all of them missed the financial crisis of 2007-09.) While Klarna is the elder statesman, dating back to 2005, the BNPL concept didn’t really hit its stride until 2020, when the COVID-19 pandemic oddly served as a tailwind.

You would think a global pandemic, including a short but deep recession, would be bad news for up-and-coming unsecured lenders, but it was the exact opposite. Stimulus money emboldened bored consumers who couldn’t travel, go out to eat or attend concerts and sporting events to stock up on the kinds of physical goods that represented BNPL’s early bread-and-butter: exercise equipment, electronics, furniture, clothing and more. And the surge in e-commerce, as physical stores either shut down or operated at reduced capacity, meshed perfectly with BNPL’s online-first business model.

For years, critics have been saying that BNPL is a ticking time bomb just waiting to explode once a “real” recession arrives. But so far, the industry has defied expectations. Affirm says its delinquency rate is “consistently three-to-four times lower than traditional credit cards.” The company touts its proprietary underwriting algorithms and that BNPL represents relatively short-term credit, even as the industry has evolved beyond its “pay in four” roots.

BNPL plans are lasting longer, often with interest

Longer loan terms reflect a key change that has rolled out gradually over the past few years: BNPL isn’t just four interest-free payments over six weeks anymore. Many providers now offer terms ranging from a few months to a few years. Affirm’s longest plans last up to 48 months and charge up to 36 percent APR. Klarna offers payment cycles as long as 36 months and charges as much as 33.99 percent interest.

Some of these longer plans charge low — or sometimes even no — interest, so it’s crucial to read the fine print. It depends on the provider, the merchant, your credit score and other factors. A typical interest rate for a BNPL plan lasting longer than six weeks is in the 15 to 20 percent range, which is similar to the average credit card rate of 20.12 percent as of early May 2025.

BNPL has extended into physical retail

Speaking of credit cards, another way in which BNPL has become more credit card-like is that Affirm and Klarna now offer physical payment cards that can be used in stores or online. Technically debit cards, they allow users to deduct funds right away from a linked checking account or opt into an installment loan.

Our survey revealed that the most popular reason Americans use BNPL is to pay in installments that allow them to spread out their cash flow (57 percent). It’s nice to be able to pay, let’s say, $50 per month over a couple of years to finance a couch.

Credit card minimum payments can stretch on for decades if you finance the average balance at the average interest rate, which helps explain why more than one in five BNPL users believes BNPL is more responsible than using a credit card. The average credit card balance is $6,580, according to TransUnion.

Depending on how you use BNPL, it can be a viable way to extend your buying power and lower your borrowing costs, but sometimes it’s a crutch that enables you to buy something that you perhaps didn’t really need. This is part of why retailers love BNPL, of course, since it leads people to spend more and abandon their digital carts less often. But it’s not always a great outcome for consumers.

Eat now, pay later

In March, Klarna and DoorDash announced a partnership that allows customers to finance food delivery and grocery orders. Users have the choice between paying in full, paying in four biweekly installments or paying later (deferring payments to a more convenient time, such as aligning with pay day, the companies explained).

This feels a bit apocalyptic. Splitting a $20 burrito order into four installments of $5? It’s smart business for a provider like Klarna to try to be all things to all people. The different financing tiers are clever, and anything that encourages more sales makes a buck, right? But it’s hard to envision how taking out a loan — even an interest-free loan — for food delivery makes good financial sense for you, the consumer.

I can make a much better case for using BNPL to pay $50 a month for a couch or a refrigerator or a new set of tires. But for food delivery? This also supports the narrative that one of BNPL’s potential pitfalls is that having so many concurrent loans makes it difficult to monitor your spending.

BNPL is starting to report to credit bureaus

As I mentioned earlier, BNPL has operated mostly outside of the credit reporting system to date (for better or for worse). For better, because many BNPL users are young people without much credit and without much money. A lot of them either don’t have a credit score or they don’t have a very good one. BNPL providers usually do a soft credit check, but they’re not overly picky about your credit history.

The problem is that responsible use of BNPL plans doesn’t tend to improve your credit score, so it’s a bit of a chicken or egg situation. You might use BNPL because it’s easy to get, but it’s not a stepping stone to improving your credit score so that you can qualify for a credit card or auto loan or mortgage.

Unless you’re so far behind on your payments that you get sent to collections, BNPL probably won’t affect your credit score. Recently, though, Affirm announced plans to report all of its loans to Experian (as of April 1, 2025) and TransUnion (as of May 1, 2025). Additionally, Klarna began reporting many of its plans to TransUnion. While these are certainly moves in the right direction, they’re essentially pilot programs. Consumers are starting to see more BNPL loans on their credit reports, but lenders don’t have access for the foreseeable future. And credit scores are not affected at this point.

The credit reporting industry has struggled with what to do with BNPL. It doesn’t fit neatly with the traditional understanding of credit behavior. It would be terrible for your credit score, for instance, if you constantly opened and closed credit cards. Or if you maxed them out. But BNPL, by its very nature, involves opening and closing accounts frequently. And users essentially max out a credit line constantly, since purchases are typically underwritten one by one. Credit scoring models will need to adapt in order to account for these eccentricities. Lenders will have to be more forthcoming about their data-sharing practices, and they will also need to beef up their dispute resolution processes.

It has surprised a lot of analysts that BNPL delinquencies are so low in the absence of strict credit reporting standards and late fees (some BNPL companies don’t charge late fees, and those that do generally assess much lower penalties than credit card issuers). To date, the carrot has proven to be more of an incentive than the stick. That is, the appeal of continuing to use these services has been more impactful than potential penalties. Losing access (since BNPL lenders will deny future applications if you don’t pay them back) is enough of an incentive to keep the vast majority of BNPL users on track with their payments.

I still believe BNPL credit reporting should be expanded to accurately reflect consumer behavior (both positive and negative) and to provide lenders (BNPL and otherwise) with information on how these plans are being utilized. The industry is slowly moving in that direction.

The bottom line

As much as BNPL has grown in recent years, BNPL transaction volume is only about 1 percent of credit card transaction volume. Still, BNPL is a payment method that is very much on the rise. Last holiday season, BNPL accounted for $18.2 billion in online spending (up about 10 percent from the previous year), according to Adobe.

The BNPL industry has been pushing deeper into more daily and in-person transactions, and it’s also expanding into services such as travel, dining and medical, dental and veterinary care.

It’s an ingenious business model that helps some people afford things they couldn’t otherwise afford. The problem, though, is that sometimes it allows you to purchase stuff you didn’t necessarily need and that you can’t really afford.

I’m bullish on the business case, but in a conflicted fashion, skeptical of the consumer use-cases at the same time. Credit cards are a much better option for people who can pay in full and are interested in rewards. Plus, credit cards have the added benefit of fitting neatly into credit scoring models, so using them responsibly is one of the quickest ways to improve your credit score.

Tread carefully when it comes to BNPL. If you can get a great financing deal on a big-ticket item you really need, I can see that working out in your favor. But if you’re robbing Peter to pay Paul for a $20 fast-food order, you need to reconsider where your money is going.