Buy Now, Pay Later Is Now a Credit Risk

Buy Now, Pay Later (BNPL) has been the hot new way to shop by breaking up payments on everything from sneakers to tacos. It’s been especially popular in our black and brown communities, and among young folks trying to make ends meet without maxing out credit cards. 

But, times are changing. 

Our pals at FICO are about to start counting those BNPL loans in your credit score, and the BNPL companies themselves are learning that “pay later” sometimes means never pay (and they’re taking big losses because of it).

Let’s talk about what’s really going on behind the BNPL curtain – the new rules, the risks, who’s profiting off those late payments, and how we can protect our pockets.

Not too long ago, BNPL was just a way to snag a fly pair of kicks or a big TV without shelling out all the cash upfront. It felt like a no-strings-attached deal with zero interest, no hard credit check, just split the payment and you’re good. 

It’s no surprise it caught on fast, especially with younger shoppers and folks tired of credit card debt. 

But lately, BNPL isn’t just for splurges anymore...

...it’s become a lifeline for basic needs!

We’ve got people using Klarna or Afterpay to cover groceries, gas, even the light bill. In fact, A recent survey showed 1 in 4 BNPL users have used these loans to buy groceries, up from just 14% a year before.

And it’s not just an occasional thing.

A lot of users are juggling multiple BNPL plans at once – 60% have more than one loan going, and about a quarter have three or more active at the same time.

Let's be honest...

When eggs and bread are busting your budget, those pay-in-4 plans start looking real good. 

But, seeing folks use BNPL for essentials is a red flag about the economy. Prices are high, paychecks are stretched, and BNPL can feel like a pressure valve. 

In other words, BNPL might help today but too much of it can trip you up tomorrow. 

Even the Federal Reserve found that Black and Hispanic women, whom are often hit hardest by economic ups and downs, are more likely to turn to BNPL loans. And a 2023 report showed Black consumers were 63% more likely to use BNPL than white consumers.

This tells us BNPL is filling a need in our community, but it also means we’ve got to be extra aware of the downsides. 

One big downside? Late payments. 

Buy now, pay later only works if you actually pay later. But nearly 4 in 10 BNPL users fell behind on a payment in the last year, a jump from the year before.

That’s a lot of people paying late fees or scrambling to pay bills and/or catch up. And BNPL late payments can hit HARD. You miss one, and before you know it, you’ve got multiple smaller bills snowballing, all with their own fees. It’s a fast track to a debt spiral. 

In fact, 41% of BNPL borrowers reported an overdue payment in the past year, and about 24% admitted they spent more than they should have because BNPL made it so easy. 😩

Trust me, I get it. 

We’ve all been there. That “easy payments” button at checkout is tempting, and next thing you know you’re financing a takeout burger or a new outfit you didn’t really need lol. 

Seriously though, BNPL has blown up from a trendy payment option to a method of getting by. It’s helping people afford stuff in the moment, but it can also disguise financial strain and lead us to overspend. 

And now, with big changes on the horizon in how BNPL shows up on credit reports, we need to talk about what’s next.

For a while, BNPL lived in this kind of secret credit realm. You could take out those pay-in-4 loans and as long as you didn’t default, it wouldn’t show up on your credit report. 

No hard inquiry, and if you paid on time, it neither hurt nor helped your credit. (If you did default and it went to collections, that's a different story, and it would drag your credit score down). 

But things are changing starting Fall 2025: FICO announced it will launch its first credit scores that include BNPL loan data.

Yep, those little installment plans might soon count in your credit file. So what does this mean for you?

Up to now, many BNPL loans weren’t reported to Experian, TransUnion, etc. If you took out five pay-in-4 plans for some new clothes and food deliveries, future lenders wouldn’t see that. 

Now, FICO Score 10 BNPL models will incorporate BNPL data, giving lenders a heads-up on how you handle these loans.

That means if you’ve been using BNPL a lot, any new credit score versions might reflect that history. 

If you’ve been on top of your BNPL payments, you could get credit for it and potentially see a boost in your scores. But, if you’ve been missing payments or juggling a dozen BNPL plans, lenders will see that too.

It's important to know that the rollout of the FICO 10 BNPL scoring system will take time. Not every bank and credit card company will start using the new BNPL FICO score right away. 

Credit scoring changes are slowww. In fact, the most commonly used FICO version is still FICO 8 from 2009! 

Lenders take several years to adopt new models. So initially, FICO Score 10 BNPL will be offered alongside existing scores and lenders can choose to test the waters.

It's likely that it might not immediately affect whether you get approved for a loan or not, since a lot of lenders will still be looking at older scoring models.

Even before FICO announced the big move, BNPL companies started reporting data. For example, Affirm began reporting all its loans to Experian and TransUnion earlier this year.

And Klarna (another big BNPL player) is reporting some of its longer-term loans to TransUnion as well

The industry knows that more transparency is coming.  We’re basically in a trial phase where BNPL info is slowly being reported, and the scoring systems are catching up.

Now, for Black consumers and young people who’ve leaned on BNPL, this shift has double meaning. 

On one hand, a lot of us turned to BNPL because traditional credit was hard to get or felt stacked against us. I know plenty of folks who side-eyed credit cards or got denied for them, and then found BNPL to be an easy alternative.

If you’ve got thin credit history because you're fresh out of college or you’ve avoided credit cards, using BNPL responsibly could help show lenders you’re not a risk. This could also be good for someone who always paid their four installments on time.

But, if you’re relying on BNPL just to get by and you miss payments, the stakes are about to get higher. 

Before, a late BNPL payment might charge you a fee but your credit score stayed safe. Moving forward, falling behind on BNPL could hurt your credit score just like a late credit card payment would. 

Plus, we have to consider why many Black and low-income consumers use BNPL more in the first place – systemic inequities, lower access to traditional credit, or just trying to make ends meet. 

If those same folks start getting hit on their credit report for using BNPL when money’s tight, it could ironically make things worse!

You might be wondering, why is all this happening now? 

Part of it is pressure from regulators and consumer advocates saying, “Hey, BNPL is basically credit, it shouldn’t be the Wild Wild West.” 

But another big reason: 

BNPL companies are themselves learning that not everyone can “pay later” like they promised. 

Take Klarna for example, the Swedish BNPL giant that’s super popular here in the U.S. 

They’ve been boasting about hitting 100 million customers, but behind the scenes their losses have been growing. 

In the first quarter of 2025, Klarna’s credit losses jumped 17% year-over-year to $136 million!

Translation: a whole lotta people didn’t pay back their loans and Klarna had to eat those costs. 

Klarna’s overall pretax loss for Q1 2025 nearly doubled compared to the year before (about $92 million loss, up from $47M).

And that’s despite their revenue going up! 

Which means, the growth in customers and sales isn’t fixing the hole from folks not paying back on time. 

And it’s not just a Klarna thing, this is industry-wide. Nearly 40% of BNPL users made late payments in 2024.

Those missed payments might mean late fee revenue for the BNPL companies, but it also means a chunk of their loans turn into defaults. 

That’s why Affirm’s stock has been on a rollercoaster and why all these BNPL companies are re-evaluating how they lend. 

Sometimes the best way to understand a problem is through an example. So let me tell you about a friend of mine who learned the hard way that if a deal sounds too good to be true, it probably is...

He desperately needed a car to get to his new job. Money was tight and his credit score wasn’t great, so a traditional auto loan was out of question. 

But, then he came across a local used-car dealership advertising a “Buy Now, Pay Later” option. 

The pitch was that he could drive off with the car by making a small initial payment and then split the rest of the cost into a bunch of installment payments. 

No bank loan, no waiting – just sign and drive. They set him up with a BNPL-style payment plan: $500 bucks upfront, then biweekly payments directly to the dealership.

For someone who needed wheels immediately and couldn’t pay the full price, it sounded like a dream come true... right?

WRONG! That dream came to a halt quick. 

Y’all, when I say this car was trash... I mean two months in, it was in and out of the shop. Eventually it broke down completely. 

And while my friend missed maybe one payment while sorting out the repairs, the dealership didn’t waste a minute repossessing the car as soon as they legally could. 

And here’s the kicker: instead of fixing the serious issues or being fair, they cleaned it up, slapped a new coat of wax on that hoopty and put it right back on the lot for sale, again! 😩

Essentially, they got a couple payments out of my friend, took the car back, and were ready to rinse and repeat with the next unsuspecting buyer. 

Sadly, this wasn’t some one-off scam – it’s an actual business model in some places. 

Some used-car dealers purposely sell overpriced, beat-up cars on easy credit terms knowing damn well many buyers will default. 

Why? 

Because they make more money when you fail. 

They’ll collect your down payment and a few installments, repossess the car, then sell that same car to someone else and do it all over. 

It’s called “churning”, repeatedly selling and reclaiming the same vehicle. Even a recent review of records in California found one dealership sold 130+ cars at least three times each over a few years. Whew 😅.

Basically, once they get payment from the first buyer, everything else is gravy. They can collect $25,000 on a $2,500 car.

The dealer might make ten times the car’s worth by cycling through buyers who keep defaulting (by design). It preys on folks with bad or no credit (many Black and brown consumers or lower-income people who can't get a bank loan). 

Plus, the dealership is the lender, so they skirt a lot of federal regulations. And because the buyers are desperate for a car, they sign these contracts not realizing the trap. 

I'm talking high interest, crappy terms, GPS trackers on the car, even remote kill switches – all so the dealer can snag the car back quickly if you slip up. And like my friend learned, they’re not in the business of setting you up to succeed in paying it off because they actually win more when you lose.

Why am I telling this story in a BNPL article?

Because it’s an example of the core issue: when credit is too easy to get and comes from lenders that don’t have your best interest at heart, it can be a trap. 

Whether it’s a shady car lot in the hood or a slick app on your phone, the principle is the same. If the system profits from you falling behind, you gotta be extra careful. 

BNPL for a car is basically just a twist on subprime auto loans, and BNPL for shopping can similarly exploit people if they’re not careful... just with smaller dollar amounts. 

So, learn from my friend’s experience. Always read the fine print, and if a deal sounds too good to be true (“no money down, no credit needed, drive off now!”), ask yourself... how does this business makes its money?

You'll find it's often by coming after your pockets later on.

BNPL isn't all bad. It has its place. It can be a useful tool if used sparingly and responsibly. Plenty of folks swear by it as a way to avoid credit card interest and budget out a big purchase. 

But behind that easy-breezy user experience, is a whole system engineered to make money. Let's talk about it:

Merchant Fees Pay for Your Perks 

Ever wonder how BNPL can afford to charge you 0% interest most of the time? It’s because the store is paying a fee to the BNPL provider for each transaction (usually around 3-6% of the purchase price). 

In exchange, the store gets you to buy more stuff and the BNPL service takes their cut. So the more you buy, the more both the retailer and the BNPL company benefit. It’s in their interest (pun intended) to encourage you to use BNPL often.

Late Fees and Gotchas 

Many BNPL services charge fees if you’re late. They might sound small like $7 here, $10 there. But they add up, and they are often flat fees (which can be huge relative to a small purchase). Because of autopay, most BNPL loans get paid without issue. But when a late fee does hit, it’s basically extra profit for the BNPL provider. 

Companies like Afterpay made as much as a quarter of their revenue from late fees in their earlier years. Which means a chunk of their business model was hoping some people slip up. 

And unlike credit cards, BNPL isn’t mandated to give you a grace period or limit the fee as strictly, although many have capped fees to be consumer-friendly.

No Credit, No Problem (Until It Is) 

BNPL’s selling point is no credit check, which is great for access. But it also means they’re giving loans to people who might be already overextended. 

Traditional lenders have rules to prevent you from getting in too deep (like checking your debt-to-income ratio, or seeing if you already missed payments elsewhere). 

BNPL bypasses a lot of that. 

So it’s possible to have several BNPL loans on top of other debts without anyone getting the full picture – not even you, if you’re not keeping track. 

This is why BNPL can lead to financial ruin. I compare it to the old school layaway, except you get the item upfront. Which psychologically can make you less cautious because people tend to spend more when BNPL is available because it doesn’t feel like spending real money.

Debt Collection 

If you flat-out default on a BNPL loan (stop paying entirely), it will likely get sent to collections. That’s when the friendly BNPL app turns into calls and emails from a collection agency, and a big fat negative mark on your credit report. 

Collections are bad news...

They can drop your credit score significantly and haunt your credit for years. So even though a BNPL is informal, remember it is a loan. Miss payments, and it ends up just like unpaid credit card debt in the eyes of the credit bureaus.

So who really pays in “buy now, pay later”? Ultimately, you do, if you’re not careful. 

The retailers pay a cut to BNPL providers, but they bake that into prices. The BNPL companies take some losses on folks who never pay, but they offset that with merchant fees, and late fees or other charges. 

And if you really can’t pay, you pay with your credit score. 

Now I’m not saying this to spook you out of ever using BNPL. I’ve used it. Most of us probably have at some point. I’m saying this so we all go in with eyes open. 

BNPL is not a magic solution, it’s a slick repackaging of an installment loan, and the same rules of money still apply.

Alright, we’ve talked about a lot of scary stuff. But now let’s focus on solutions and strategies. How can you use BNPL, or any credit, in a way that helps rather than hurts? Here are some tips to keep your finances safe:

Treat BNPL Like a Real Bill (Because It Is)

Just because it’s split into four tiny payments doesn’t mean it’s not real debt. 

Before you click that BNPL button, ask yourself: “Would I put this on my credit card? Would I take out a loan for this?” If the answer is no, skip it. If yes, then make sure you can handle the payments. Mark them on your calendar. Basically, treat them like your rent or phone bill.

Avoid Impulse Buying 

BNPL makes impulse shopping dangerously easy. Why do you think all those online stores push it so hard at checkout? 

One tip: wait at least 24 hours (or a full week for bigger buys) before committing. You might realize you don’t need that item after all. Delay the gratification...your wallet will thank you.

Limit Multiple Plans 

It’s easy to lose track if you’ve got BNPL loans with different apps (Affirm, Klarna, Afterpay, etc.) all at once. Try to keep only one BNPL loan at a time, two at most. And definitely avoid stacking three, four, five loans simultaneously. When you juggle too many, it becomes more likely you’ll slip up on one.

Remember, debt is debt, even if it’s in cute little installment packages.

Read the Fine Print 

I get it, it’s boring. 

But at least scan for key things like late fees, what happens if you reschedule a payment, any interest (some longer-term BNPL loans beyond the pay-in-4 do charge interest), and whether they will hit your credit. 

Some BNPL loans longer 12-month plans might involve a hard credit check or report to bureaus. Just know what you’re signing up for.

Consider Alternatives 

If you’re using BNPL for needs (like groceries, utilities), that’s a sign something’s off in your budget. Look into other help like a 0% APR credit card promotional deal if you have decent credit, community assistance programs, or a small credit union loan. 

Those might offer more flexibility. 

And if you’re trying to build credit history, a secured credit card or a credit-builder loan might serve you better long-term than a BNPL habit.

Plan Your Payoff 

This one’s huge.

Budget for your BNPL payments before you take on the loan. If you’re buying a $400 item in four payments, figure out where that $100 every two weeks will come from. 

If you’re already tight, maybe that means cutting $100 from elsewhere or earning extra. Don’t wing it, write it down. If you can’t see a clear path to pay it off, that’s a red flag that you probably shouldn’t BNPL it.

Keep an Eye on Your Credit 

With BNPL starting to show up on credit reports, it’s important to check yours regularly. 

You can get free credit reports at www.annualcreditreport.com, and many banks/apps provide free score monitoring. 

If you see BNPL accounts listed, make sure they’re accurate. And if a paid-off BNPL loan isn’t boosting your score, don’t worry. It's possible they won't count until lenders adopt the new scoring models.

 Just focus on the fundamentals: on-time payments, low balances, and good financial habits.

In fact, I think it’s only going to keep growing in popularity. It’s becoming woven into how we handle money, especially for younger generations and communities that have been overlooked by traditional finance. 

But as we’ve broken down here, “buy now, pay later” has some fine print that we all need to understand.

It’s shifting from a feel-good, no-consequences perk to a form of credit that will follow you around.

The companies behind it aren’t doing charity. If anything, some have banked on customers slipping up, and the house always finds a way to win.

In the worst cases, like that car story, BNPL-style arrangements can straight up prey on the most vulnerable. We have to have our guards up, always.

The good news is, now you’re hip to the game. Use BNPL if it truly helps you, but do it with intention and eyes open. 

Educate your friends and family too because a lot of people don’t know about these upcoming credit score changes or the risks of treating BNPL like free money. 

Something as simple as explaining, “Hey, you know those four-pay plans could start affecting your credit score come fall 2025,” can save someone from a upsetting surprise down the road. 

At the end of the day, financial literacy and smart credit use are the real keys. Whether it’s BNPL, credit cards, or old-school layaway, knowing how these systems work is half the battle. The other half is discipline, and I won’t lie, that part’s tough when times are tight. 

But we got this. 

By planning ahead, staying informed, and looking out for each other, we can use tools like BNPL to our advantage instead of getting caught in a debt trap. 

Remember: It’s your money and your future. Don’t let “buy now, pay later” turn into “broke now, broke later.” Keep it 100 with yourself financially, and you’ll be way ahead of the game.