"Buy now, pay later" is becoming an increasingly popular way for Americans to shop—the stock for one company offering payment plans on purchases, Affirm, quintupled in 2023, reports CNBC—and warnings are increasingly being issued about what that could mean for consumers. The New York Times cites a Wells Fargo economist who describes pay-later loans as "phantom debt," because they're not typically reported to credit bureaus or otherwise noted in publicly available data about debt, so it's not clear how much risk the financial system bears due to their use. And one of the users of such loans, which allow buyers to pay for their purchases in installments, tells the Times it was similarly difficult for her to keep track of her payment schedule as she used the loans more and more: "It's easy when you keep continually clicking and clicking and clicking, and then it's not."
Others who spoke to the Times and other outlets, however, say the loans are easier for them to track than credit card spending, with a clear repayment schedule and, in general, no interest charges or other fees (the companies make money by charging retailers). "I feel like credit cards can be easier-to-spend money," one satisfied BNPL user, who says most of her friends now use such loans instead of credit cards, tells NBC News. But financial experts are still warning would-be BNPL users to exercise caution, and not just because they could get themselves into more debt than they're ready for: The pay-later loan industry is currently not very regulated (though more regulations are expected), meaning, as one expert tells Fox News, "That means fewer protections if you're not satisfied with a purchase." Returns and refunds can be particularly tricky.
A PYMNTS report notes almost 40% of high-income consumers, defined as making $100,000 or more per year, use any form of pay-later plans, from those offered by companies including Affirm, Afterpay, and Klarna to installment plans offered on store-specific credit cards. But an expert who talked to the NYT says more low-income consumers are starting to use them, too—sometimes using cash advances to cover the payments when they come due, which can then lead to an ongoing cycle of continuing to use pay-later loans when they then don't have enough to cover bills. One report found that almost 43% of BNPL users had overdrawn a bank account in the past year, compared to 17% of those who don't use BNPL loans.
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One thing is clear: The loans, which hearken back somewhat to layaway plans offered by some retailers for decades, aren't going anywhere. Walmart self-checkout registers across the US now offer "buy now, pay later" through a new partnership with Affirm (on those purchases, a one-time interest fee is charged, MLive reports). Nasdaq notes that traditional credit cards are increasingly moving into the pay-later space with their own similar installment-payment offerings, as are other payment platforms like PayPal. It's not yet clear how all this will end, but many are calling for more oversight: "It's a huge blind spot right now, and we all know that," says a TransUnion VP. (More debt stories.)
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