On August 5, the Kansas City Fed released a report that highlighted the rapid growth of “buy now, pay later” (BNPL) services, which let consumers make purchases through short-term installment payments. BNPL products have gained popularity among millennials, Generation Z, ethnic minorities and financially vulnerable consumers, with surveys estimating that two-thirds of U.S. consumers received BNPL offers in 2023 and up to one-fourth used these services.
The report explained that BNPL arrangements typically feature interest-free installments, making products more accessible to those who may not qualify for traditional credit. However, the report warned that the ease of using BNPL can lead consumers to overspend or become over-indebted, particularly given the ability to have multiple BNPL loans at once.
The Kansas City Fed found a correlation with a consumer’s missed payments, financial distress and a heightened risk of default. The report advised consumers to review BNPL terms and conditions carefully, understand whether payments are reported to credit bureaus and avoid impulse purchases that could lead to overextension.
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