Financial flexibility traps: Several borrowers are finding themselves in debt due to the buy-now, pay-later options
Buy Now, Pay Later Services: Consumers Grapple with Debt Amid Soaring Inflation and Interest Rates
Financial experts are urging caution as consumers struggle with mounting debt from Buy Now, Pay Later (BNPL) services, amid persistent inflation, high interest rates, and rising student loan payments.
BNY Wealth CIO Sinead Colton Grant weighed in on the financial landscape on 'The Claman Countdown.' According to Grant, consumers have turned to BNPL services like Klarna, Affirm, and Afterpay for financial flexibility. However, a recent report suggests that these services may be contributing to growing consumer debt levels.
Klarna, a significant player in the BNPL space, reported a sharp increase in losses and credit losses in its first-quarter earnings report. The company's net loss for the first three months of 2025 was $99 million, up from $47 million in the same period last year. Consumer credit losses rose by 17%, driven by increased loan issuance, according to a spokesperson for the company.
Consumers have increasingly been relying on BNPL services to manage mountains of debt, including credit card debt, which reached record highs in the fourth quarter of 2024. The Federal Reserve Bank of New York's report in February revealed that overall household debt had increased by $93 billion to $18.04 trillion, with credit card balances surging to $1.21 trillion.
While BNPL services promise financial flexibility, they also pose risks. Lack of transparency and regulatory oversight have left consumers vulnerable to unaffordable borrowing and debt traps. Moreover, missed payments can lead to high interest charges and exacerbate financial stress during economic downturns.
Chief consumer finance analyst Matt Schulz at LendingTree warns against over-reliance on these services. According to LendingTree's BNPL Tracker, 39% of Americans were considering applying for a BNPL loan in April, marking the biggest monthly jump since March 2023.
Ease of approval and the convenience of BNPL services have contributed to their rapid adoption, with over 128 million Americans using these services in the past year. However, this convenience may lead to overspending and debt accumulation, especially during periods of high inflation and interest rates.
While the expansion of BNPL services beyond e-commerce and into sectors like healthcare, automotive, and leisure offers consumers added flexibility, it also increases the potential risks associated with these services. Regulatory changes aim to provide greater protection to consumers by introducing affordability checks, faster refunds, and clearer complaint processes.
As economic challenges persist, financial experts advise consumers to approach BNPL services with caution, carefully managing their debts and financial commitments to avoid falling into a debt trap.
Sources: BNY Mellon Wealth Management, Klarna, LendingTree, Federal Reserve Bank of New York
- Financial experts suggest consumers should exercise caution with Buy Now, Pay Later (BNPL) services due to rising debt levels, inflation, and interest rates.
- BNPL service providers like Klarna, Affirm, and Afterpay offer financial flexibility to consumers, but a recent report indicates they may be exacerbating consumer debt issues.
- Klarna, a BNPL company, reported a significant increase in losses and credit losses in its first-quarter earnings for 2025.
- Consumers are relying on BNPL services to manage accumulated debts, including credit card debt, which reached record highs in Q4 2024.5.While BNPL services promise flexibility, they also pose risks such as unaffordable borrowing, debt traps, and high interest charges.
- LendingTree's BNPL Tracker shows that 39% of Americans were considering applying for a BNPL loan in April, reflecting convenience-driven overspending and debt accumulation.
- As economic difficulties persist, financial advisors recommend consumers carefully manage debts and financial commitments to avoid falling into debt traps through BNPL services, and seek regulatory protections like affordability checks and faster refunds.
