Many consumers find that buying now and paying later is a godsend when cash is tight. Others wish they had paid up front to avoid suffering later.
Tia Whiteside, 27, knew she was spending more than she would have without Buy Now, Pay Later services, popular loans that allow borrowers to split purchases into installments with little or no interest. Last year, planning a day trip to the beach with her 2-year-old son, she spent $800 on Amazon purchases, including a tent, new clothes and a high-end sandcastle kit with supplier BNPL Affirm.
Whiteside, a behavior analyst based in Greenville, South Carolina, who treats childhood autism, makes good money; she and her husband earn about $110,000 a year combined. But the $6,000 in BNPL loans she had accumulated in about two years seemed frivolous, she said, especially since they are planning to buy their first home.
“I saw my paycheck being eaten up all the time,” Whiteside said, “and I thought, ‘Where is my money going?’”
The final straw was a $600 Dyson hair straightener and hair dryer, which she has used only once since purchasing it with Affirm at Neiman Marcus in early February. In mid-March, Whiteside said he deleted the Klarna and Afterpay apps from her phone, but she kept Affirm because she still owes her money.
BNPL services have taken off among shoppers at all income and credit levels for various reasons. Many seek coverage from high credit card interest rates. Some, having burned through traditional credit options, are desperate for a financial lifeline. Others are simply trying to manage their cash flow better.
The fastest adoption has been among consumers aged 35 and under, who account for more than half of BNPL borrowers, LexisNexis Risk Solutions found late last year. Many are increasingly using loans for everyday needs, not just large purchases. While some already see them as a routine tool in their portfolios, others, like Whiteside, turn away in alarm.
“I can pay with my credit cards more freely if I don’t have that other consumer debt,” Whiteside has since realized, referring to his existing card balance of $10,000. After reducing her discretionary spending and continuing to eat home-cooked meals, she said she was able to reduce her BNPL debt to about $1,200.
As BNPL use has skyrocketed, financial experts and researchers have raised alarms about risky spending on the platforms, even though they can often be used responsibly.
“I’m sure there are people who use it well, but on average we think it replaces the credit card,” said Ben Lourie, an accounting professor at the University of California, Irvine. “People are consuming more. There’s just no way around it.”
Lourie and other researchers from UC Irvine, Stanford and Singapore Management University analyzed the banking and credit card data of nearly 11 million consumers. They found that BNPL users racked up at least $176 more per year in overdraft fees, credit card interest and late fees after they started using the services.
While the transaction data examined, in a paper published March 21, ranged from 2014 to 2021, Lourie said he suspects excessive spending has “worsened.” But this may be difficult to evaluate, in part because BNPL loans are not consistently reported to the major credit bureaus, creating “phantom debt” that lenders aren’t always able to see.
Some borrowers have warned others on social media against buying now and paying later, and some have criticized the services’ advertising practices.
“I have about 10 PayPal payments left across 4 plans (luckily they’re almost done), $500 in affirmation plans, and $2,000 on credit cards,” one Reddit user wrote last year. “I just tried to get my parents out of my student loans and was told I couldn’t due to the rotation of my debt-to-income ratio.”
“I finally paid my Postepay bill and they immediately sent me an email to buy shoes in installments”, a the poster on X said in February. “What part of I’m poor don’t they understand?”
The services caught the attention of the Consumer Financial Protection Bureau, which found last year that most BNPL users had higher credit card usage rates and lower credit scores than non-BNPL borrowers. Many appeared to lean on installment loans, while at the same time incurring high rates on revolving credit card balances, the agency said.
The report also found that Black consumers were 65% more likely to borrow with BNPL than the general population, followed by Hispanic consumers (47%) and female consumers (35%).
After about three or four years of using BNPL services for designer clothes, bags and Apple devices, Amy Baird, 39, was more than $9,000 in debt.
“It hit me,” said Baird, who lives in Dallas and works as a claims handler for an insurance company. “I had put myself in a pretty big hole,” he said, adding that she found support in a subreddit focused on shopping addiction.
Her boyfriend helped her get a low-interest balance transfer card, making it easier to manage loans one provider at a time, she said. After paying off the other three major BNPL lenders, Baird said, his Affirm balance of about $1,200 is all that’s left.
Financial planners often advise compulsive shoppers to stop after putting something in their online cart, consider payment strategies, or wait a day and come back. But BNPL platforms can make pausing difficult, some borrowers and financial experts said.
Whiteside recalled receiving smartphone notifications from her Affirm app shortly after paying off a loan, telling her, “‘You already have a pre-approved amount to spend,’ and that seems pretty gross,” she said.
Many consumer lending products, including traditional credit cards, regularly run promotions to attract and retain borrowers. But Kevin Mahoney, a financial planner based in Washington, D.C., said BNPL services are set up in a way that feeds habits his clients are trying to break.
“All you have to do is click ‘buy,’” he said.
This lightness can be especially appealing “on days when people are tired or stressed and you have less willpower,” said Mahoney, who works primarily with millennial consumers. Many younger borrowers — especially those with large, new financial obligations like student loans — find that the size of their overspending creeps up suddenly, she said.
Affirm did not comment on its advertising, but said it underwrites every lending decision to ensure users are not overcharged.
“You can see exactly the total cost upfront before deciding whether or not to transact, and it doesn’t perpetuate these cycles of debt with compounding interest or profits from junk fees and complicated calculations,” a spokesperson said.
Afterpay highlighted features designed to “safeguard” consumers, including the ability to lower spending limits and personalize notifications. PayPal said it emphasized “payment flexibility and choice” at checkout and took borrowers’ repayment history into account in its lending decisions. Klarna said it has responsible spending limits for its users, whose average outstanding balance is $150, compared to more than $6,000 for credit card users.
Some lawmakers have called for greater oversight of BNPL services.
Last fall, Sen. Sherrod Brown, D-Ohio, who heads the Senate Banking Committee, joined Sens. Raphael Warnock, D-Ga., and John Fetterman, D-Pa., in a letter urging the CFPB to ensure that BNPL providers do not “take advantage of distressed consumers” ahead of the holiday season.
“Aggressive advertising encourages consumers to use these plans for multiple purchases, at multiple online stores, accumulating debt they cannot afford to repay,” Brown said in a statement to NBC News.
Baird, for his part, acknowledged that BNPL services can make inflation and high interest rates “easier” for those who manage to keep their buying impulses in check. But he has abandoned them forever and encourages others to proceed with caution.
“I’m so afraid of them now,” she said. “I don’t need that in my life.”