The checkout button flashes temptingly: “Split it into four payments—no interest!” For millions of Americans, Buy Now, Pay Later (BNPL) services have become the new normal for shopping. But beneath the convenience lies a troubling question: Are consumers making a critical financial mistake, and what does their growing reliance on these services reveal about the state of our economy?
The BNPL Boom: Numbers That Demand Attention
The growth of Buy Now, Pay Later has been nothing short of explosive. In 2024, BNPL transactions totaled $334 billion, with projections showing they’ll balloon to $687 billion by 2028—a staggering 105% increase. To put this in perspective, total U.S. household debt reached $17.9 trillion in the third quarter of 2024, including $1.2 trillion in credit card debt. While BNPL remains relatively small compared to traditional credit, its rapid growth trajectory is impossible to ignore.
Perhaps more concerning, more than one-fifth of consumers with a credit record used BNPL loans in 2022, with most having subprime or deep subprime credit scores. This isn’t just a trendy payment option for financially stable shoppers—it’s increasingly becoming a lifeline for those already struggling.
The Hidden Debt Problem
Here’s where things get troubling. BNPL has created what economists call “phantom debt”—borrowing that goes largely unreported to credit bureaus and therefore invisible to the broader financial system. A Federal Reserve Bank of New York report warned that people using BNPL services are “disproportionately” financially fragile, measured by their average likelihood of coming up with $2,000 in an emergency.
The data paints an even grimmer picture. Research by Citizens Advice found that 21% of BNPL customers have either missed or made a late payment, and 10% have reported visits from enforcement agencies or bailiffs. More alarmingly, nearly a third of BNPL customers who had paid an installment within a month borrowed the money from another lender—essentially using debt to pay off debt.
Research also revealed that more than three-fifths of BNPL borrowers held multiple simultaneous BNPL loans at some point during the year, and one-third had loans from multiple providers. This pattern of “loan stacking” suggests many consumers are juggling more debt than they can comfortably manage.
The Mistake: Misunderstanding the Real Cost
So are consumers making a mistake? In many cases, yes—but it’s a nuanced answer.
BNPL isn’t inherently problematic. When used strategically by financially stable consumers for planned purchases, the interest-free structure can actually be beneficial. The mistake comes when consumers use BNPL as a financial crutch rather than a convenience tool.
The real issues emerge from several dangerous patterns:
Overspending through psychological tricks. The pain of payment is divided, making purchases feel more affordable than they are. This leads consumers to buy things they wouldn’t otherwise purchase or can’t truly afford.
Hidden fees and penalties. While marketed as “interest-free,” late fees, penalties, and overdraft charges from missed payments can be as high as interest charges on credit cards. The “free” loan isn’t so free when you fall behind.
Debt spiral dynamics. BNPL offers features designed to increase habitual reuse, enticing some consumers to repay their BNPL loans before other debts to maintain access or increase their credit limit. This means that financially stressed consumers may prioritize BNPL payments over other critical obligations, such as rent or utilities.
The illusion of affordability. One in five customers is now using BNPL to buy essential goods—not discretionary purchases, but necessities. When you need BNPL to afford groceries, that’s not savvy shopping; that’s a financial red flag.
What This Tells Us About the Economy
The BNPL explosion is a symptom, not the disease. It reveals several uncomfortable truths about our economic reality:
The squeezed middle and lower classes. While headline economic indicators have been positive—retail sales grew about 4% in 2024, consumer spending increased 0.4% in December, and unemployment remained at a relatively low 4.1%—these aggregate numbers mask significant financial stress. Low and moderate-income households remain under pressure from recent years’ significant increases in the cost of living, though more affluent Americans are spending freely.
The credit card crisis context. Household credit card debt hit $1.1 trillion in 2024, up from $810 billion in 2020, and delinquency rates have nearly doubled over the past two years. Consumers are turning to BNPL partly because they’ve maxed out traditional credit options or are trying to avoid further credit card debt.
A two-tiered recovery. The rise of BNPL underscores the uneven nature of the post-pandemic economic recovery. While savings rates normalized and employment remained strong, many households depleted the excess savings they accumulated during pandemic stimulus programs and now face persistent inflation in essential categories like housing and food.
The erosion of financial buffers. Perhaps most telling, the type of person using BNPL—disproportionately those who couldn’t quickly access $2,000 for an emergency—suggests that financial resilience remains weak for a large swath of the population, despite positive topline economic data.
The Systemic Risk
Because most BNPL loans are not reported, they can become so-called “phantom debt,” introducing systemic risk. Wells Fargo senior economist Tim Quinlan coined this term, warning that experts may have been “lulled into complacency about where consumers are.” When economists, policymakers, and even other lenders can’t see the full picture of consumer debt, they can’t properly assess economic risk or consumer health.
The good news? In May 2024, the Consumer Financial Protection Bureau classified BNPL lenders as credit card providers under the Truth in Lending Act, requiring them to investigate disputes, credit refunds, and provide billing statements. This regulatory response suggests the risks are being taken seriously.
Are consumers making a mistake with BNPL? Many are—particularly those using it to afford essentials, juggling multiple simultaneous loans, or borrowing from other sources to make BNPL payments. These behaviors signal financial distress, not smart money management.
But the bigger story is what this reveals about our economy. The BNPL boom shows that, despite positive employment figures and GDP growth, a significant share of American consumers are financially fragile. They’re one unexpected expense away from crisis, stretching every dollar, and increasingly dependent on creative payment methods to maintain their standard of living.
The real mistake isn’t just individual consumers misjudging their BNPL use—it’s our collective willingness to ignore what this trend is screaming at us: that beneath the surface of economic recovery, millions of Americans are barely keeping their heads above water. BNPL isn’t creating this problem, but it’s making it easier to ignore until the bills come due.
As we move into 2025, the question isn’t just whether consumers can afford their BNPL payments. It’s whether we’re willing to address the underlying economic pressures that have made these services feel necessary in the first place.
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