Why Buy Now, Pay Later Became America’s Latest Permission Slip

by Kent O. Bhupathi

At the checkout page, buy now, pay later performs a small act of psycho-financial wizardry. It takes a price that may feel uncomfortable and turns it into a schedule that feels manageable. A $100 purchase becomes four easier payments of $25.

Has the household budget improved, or the total price fallen? No. Still, the smaller number lands differently.

For a household stretching income across groceries, rent, insurance, childcare, and the everyday tax of things breaking at the worst possible time, that smaller number can feel like breathing room. BNPL grew in the U.S. because it meets consumers at that exact point of tension.

It offers short, fixed, often interest-free installments. It lets merchants close more sales. It gives households with thin cash cushions another way to keep spending when the paycheck and the purchase do not arrive on the same schedule.

That usefulness deserves to be taken seriously. But… so do the risks. BNPL can help consumers smooth cash flow, but it can also make debt easier to accumulate, harder for lenders to see, and more likely to stack on households already under financial pressure.

BNPL Met the Moment

BNPL has moved from a niche payment option into the mainstream of U.S. consumer finance. In the Federal Reserve’s Survey of Household Economics and Decisionmaking, 15% of adults said they had used BNPL in the prior 12 months in 2024, up from 14% in 2023 and 10% in 2021. A Philadelphia Fed survey focused on “pay-in-four” products found holiday-season usage rising from 17.7% in late 2022 to 19.9% in late 2023 and 20.4% in late 2024, although the final increase was not statistically significant.

The market data show the same expansion. In a six-firm sample, the Consumer Financial Protection Bureau reported 335.8 million BNPL loans and $45.2 billion in originations in 2023, along with 53.6 million lender-level users. Cross-firm duplication means that user count needs caution, but the trend does not. BNPL has become a meaningful payment and credit channel.

The appeal becomes easier to understand against the condition of household balance sheets. Consumer-loan delinquency at commercial banks stood at 2.64% in the first quarter of 2026, only modestly below 2025 readings, while credit-card delinquency remained elevated at 2.92%. Stress was also visible in housing credit: single-family mortgage delinquency rose to 1.89% from 1.77% a year earlier, and the New York Fed reported serious mortgage delinquency ticking up from 1.4% to 1.5%.

Income data complicate the picture because the aggregate measures show some real improvement, even as households continue to report strain from higher prices. Median weekly earnings rose 3.4% from a year earlier in the first quarter of 2026, outpacing CPI inflation of 2.7%. The seasonally adjusted real median weekly earnings series also edged up, reaching 376 in the first quarter of 2026 compared with 373 a year earlier. Still, the pressure remains visible in household sentiment and behavior: in the Fed’s 2024 household well-being survey, 60% of adults said price changes over the prior year had worsened their financial situation, and 79% said they had adjusted their behavior in response to higher prices.

The U.S. still has employed consumers who spend, but many of them have less slack than the headline numbers suggest. BNPL fits neatly into that gap.

Making Debt Feel Manageable

BNPL succeeds because the product feels simple. Consumers do not have to apply for a traditional loan or think through a long repayment horizon. The option appears at checkout, when the purchase feels close.

In the Fed’s 2024 survey, users said they wanted to spread out payments, liked the convenience, wanted to avoid interest charges, preferred not to use a credit card, or liked having a fixed number of payments. That last point carries much of the appeal. Credit cards offer flexibility, but revolving balances can drag on for months or years. The calendar tells the consumer when the obligation ends.

For some households, this structure can work well. A short installment plan may cost less than carrying a balance on a high-rate credit card. It can help someone buy tires, replace a broken phone, cover school supplies, or bridge a mismatch between paydays and expenses. A useful product can still create trouble when consumers use it repeatedly across purchases and providers.

As these plans accumulate, the risk shifts from any single purchase to the way multiple small obligations begin to collide. One four-payment plan may be manageable, but several plans running at once, each tied to its own automatic debit date, can turn routine budgeting into a snarl. The product’s clean design compounds the problem by reducing the emotional weight of borrowing. A smaller installment can make a purchase feel affordable even when the total obligation has not changed.

Promoted Because It Works

The consumer sees flexibility, and the merchant sees conversion. It’s just that simple.

Transaction-level research by Marco Di Maggio, et al., finds that BNPL access increases total spending and shifts a larger share of spending into retail. The authors argue that the effect looks too large to reflect simple substitution from other payment methods. BNPL appears to make funds feel more available at the moment of purchase, especially for consumers with tighter liquidity.

Merchant-side evidence points in the same direction. Tobias Berg, et al., find that BNPL increases sales by about 20%, with stronger effects among lower-creditworthiness customers and in settings where merchants have more market power. Their work explains why retailers keep adding these buttons. BNPL raises conversion, lifts spending, and turns hesitation into revenue.

BNPL scaled in the United States because the market already had the conditions under which the product tends to grow fastest. The Bank for International Settlements finds that BNPL expands more quickly in economies with stronger e-commerce penetration, higher inflation, and looser regulation. The U.S. combined entrenched online shopping habits with lingering price pressure, heavy consumer-credit use, and historically incomplete BNPL reporting to major credit bureaus.

Consumers like the schedule. Merchants like the sales lift. Platforms like the frictionless checkout. So, it’s a win-win-win?

The Risk Falls Heaviest on the Fragile

The sharpest concern comes from who uses BNPL and why. In the Fed’s 2024 survey, 58% of BNPL users said it was the only way they could afford the purchase. Among users with incomes below $50,000, that share rose to 72%. A Federal Reserve Board note using 2022 and 2023 data found that 55% of users cited necessity, while 78% of users who were “just getting by” or “finding it difficult to get by” said BNPL made the purchase possible.

The CFPB’s matched-firm report adds another warning. BNPL borrowers’ credit-card utilization rates rose before first-time BNPL use and remained high, between 60 and 66%, far above non-users. New York Fed survey evidence also shows heavier use among people with lower credit scores, recent delinquencies, and weaker emergency liquidity. BNPL usage reached 43% among consumers with credit scores below 620 and 37% among those who had been at least thirty days delinquent on another loan in the prior year.

BNPL use also skews toward groups already facing tighter financial margins, including lower- and middle-income adults, Black and Hispanic adults, women, younger adults, and households with weaker emergency savings. This distribution gives the product a heavier social and economic footprint than its aggregate size might imply. And a missed payment always matters more when the household has no cushion…

Moreover, household-level evidence shows how costs can surface outside the BNPL loan itself. A Management Science study by Ed deHaan and coauthors, using banking data on 10.6 million U.S. consumers, finds that BNPL adoption is followed by higher overdraft charges, higher credit-card interest, and more credit-card late fees. Their estimates imply an 8.9% increase in overdraft charges, a 2.5% increase in credit-card interest, and an 8.4% increase in late fees. Extra charges averaged about $176 per year.

This is the fine print of “interest-free.” The BNPL provider may not charge interest, but repayment still competes with everything else in the household budget. An automatic debit can trigger an overdraft. A consumer who uses a credit card to repay an installment may move the cost into revolving interest. The New York Fed found that 10% of BNPL users in its survey repaid installments using a credit card, which turns a short-term payment plan into another layer of unsecured borrowing for some households.

And then there’s loan stacking, which deepens the problem…

The CFPB found that in 2022, roughly 63% of BNPL borrowers had multiple simultaneous loans at some point during the year, and 33% had simultaneous loans across multiple firms. Because many BNPL obligations historically were not reported to the major credit bureaus, lenders often lacked a complete view of borrowers’ repayment commitments. Regulators have called this a blind spot. The Richmond Fed has described nonreported BNPL as “phantom debt.”

The late-payment data send a mixed but useful signal. In the Fed’s 2024 survey, nearly one-fourth of BNPL users said they had paid late, and 57% of those late payers said they were charged extra. At the same time, CFPB loan-level data for six large firms show late-fee incidence and charge-off rates falling in 2023 from 2022, while Philadelphia Fed survey data found self-reported missed payments lower than in 2023. These measures capture different populations and outcomes.

Together, they suggest a market where underwriting has improved while household stress remains visible.

A Warning Light, Not (Yet) a Fire Alarm

Because BNPL can pull consumption forward, its macroeconomic risk runs less through the checkout screen than through household balance sheets after the purchase. Plus, while BNPL remains far smaller than other loan balances (e.g., credit card, mortgages, etc.), it does follow a familiar pattern when it grows fastest among the financially constrained.

Research shows that consumers spend more when BNPL is available and that merchants gain sales by offering it, which matters in an economy driven heavily by consumption. And the pressure comes later, when repayment absorbs future cash flow. Atif Mian, et al., find that increases in household debt relative to GDP predict weaker subsequent growth and higher unemployment, while OECD work links elevated private debt, especially household debt, with greater recession risk.

However, current evidence still does not support treating BNPL as a major stand-alone systemic threat. The CFPB estimates that BNPL usage in its 2023 market data equaled about 1% of total credit-card spending volume, and its matched-credit report found BNPL averaged about 1% of annual unsecured consumer debt, although some subgroups carried much higher shares.

Still, the credit system is adjusting. FICO launched BNPL-inclusive score variants in June 2025 as BNPL data moved toward broader bureau availability, while the CFPB withdrew its 2024 Regulation Z interpretive rule in 2025. Finally, BNPL is no longer being treated as something that can sit outside the formal credit-information system.

At The Honest Economist, we will continue to watch the indicators that show whether BNPL simply correlates with the macroeconomy or becomes a broader source of stress, including consumer-loan delinquencies, credit-card strain, mortgage delinquencies, real incomes, credit-reporting integration, and signs of debt layering.

For now, BNPL tells us something important about the U.S. economy. Many households are still spending, but a meaningful share are doing so with thin buffers and borrowed flexibility. In essence, merchants have found a payment tool that turns hesitation into completed purchases... and consumers have found a product that can smooth cash flow while making debt easier to carry in fragments.

The checkout button became popular because it offers relief at the moment financial pressure becomes visible. I see that as a signal, if nothing else.

Sources:

Aidala, Felix, Daniel Mangrum, and Wilbert van der Klaauw. “Who Uses ‘Buy Now, Pay Later’?” Liberty Street Economics, Federal Reserve Bank of New York, September 26, 2023. https://libertystreeteconomics.newyorkfed.org/2023/09/who-uses-buy-now-pay-later/.

Board of Governors of the Federal Reserve System. Report on the Economic Well-Being of U.S. Households in 2024. Washington, DC: Board of Governors of the Federal Reserve System, May 2025. https://www.federalreserve.gov/publications/2025-economic-well-being-of-us-households-in-2024-banking-and-credit.htm.

Board of Governors of the Federal Reserve System (US). “Delinquency Rate on Consumer Loans, All Commercial Banks.” FRED, Federal Reserve Bank of St. Louis. Accessed May 28, 2026. https://fred.stlouisfed.org/series/DRCLACBS.

Consumer Financial Protection Bureau. “Buy Now, Pay Later (BNPL) Products.” Archived January 2, 2025. https://wayback.archive-it.org/23481/20250102145018/https://www.consumerfinance.gov/compliance/compliance-resources/consumer-cards-resources/buy-now-pay-later-bnpl-products/.

Consumer Financial Protection Bureau. The Buy Now, Pay Later Market. Washington, DC: Consumer Financial Protection Bureau, December 2025. https://files.consumerfinance.gov/f/documents/cfpb_bnpl-market-report_2025-12.pdf.

Consumer Financial Protection Bureau. Consumer Use of Buy Now, Pay Later and Other Unsecured Debt. Washington, DC: Consumer Financial Protection Bureau, January 2025. https://files.consumerfinance.gov/f/documents/cfpb_BNPL_Report_2025_01.pdf.

Cornelli, Giulio, Leonardo Gambacorta, and Livia Pancotto. “Buy Now, Pay Later: A Cross-Country Analysis.” BIS Quarterly Review, December 4, 2023. https://www.bis.org/publ/qtrpdf/r_qt2312e.htm.

deHaan, Ed, Jungbae Kim, Ben Lourie, and Chenqi Zhu. “Buy Now Pay (Pain?) Later.” Management Science 70, no. 8 (August 2024): 5586–5598. https://doi.org/10.1287/mnsc.2022.03266.

Di Maggio, Marco, Justin Katz, and Emily Williams. “Buy Now, Pay Later Credit: User Characteristics and Effects on Spending Patterns.” Harvard Business School Working Paper, August 2022. https://www.hbs.edu/ris/Publication%20Files/Buy%20now%2C%20pay%20later%20credit_EW_a84b3c98-3608-4f28-a534-8545246ac522.pdf.

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