NEW YORK — Americans spent more than $160 billion through buy now, pay later services last year, according to research from economists at the Federal Reserve.
Financial experts say consumers are increasingly turning to these payment plans for essentials, including groceries, utility bills, transportation and, in some cases, rent.
“A lot of people are facing an incredibly difficult financial environment,” said Sara Rathner, a credit card expert at NerdWallet. “The job market is challenging, the economy is strained, and everyday costs have climbed—sometimes faster than people’s incomes.”
Pay-in-four arrangements—typically allowing shoppers to split a purchase into four payments over six weeks—made up roughly half of last year’s $160 billion in buy now, pay later transactions, the study found. Use of these plans has surged nearly 80% since 2023.
The remaining spending involved loans with repayment periods that were either shorter or longer.
How consumers are using buy now pay later
Elizabeth Brown began using buy now, pay later after moving out on her own and taking a job that left little room for basic expenses. She would purchase groceries, then use her paycheck to cover the installments. Six years later, she still relies on the service.
“Buy now, pay later has helped me get the furniture I need and keep food in my refrigerator,” said Brown, 26, of Columbia, South Carolina, who works as a clinical service member at an optical store. “I don’t necessarily feel ashamed because, at this point in my life, it’s been very beneficial.”
The industry has also expanded beyond retail purchases. Rent now, pay later services, for example, allow tenants to divide their rent into several payments.
“This is no longer just about convenience,” said Mark Elliott, chief customer officer at Happen Bank, the financial services company formerly known as Lending Club. “It’s increasingly becoming a way for people to manage cash-flow shortfalls.”
Jordan Williams, 28, initially used buy now, pay later to purchase tickets to a Hozier concert. After her daughter was born and the family faced financial hardship, she began using the service to help cover groceries.
“There simply aren’t enough resources, and that makes me angry because this shouldn’t be necessary,” said Williams, a lecturer and content creator in Greensboro, North Carolina. “We should be able to afford groceries. I feel angry, and then I feel embarrassed.”
Williams said she spent years feeling ashamed about using buy now, pay later to cover necessities. Conversations with others carrying debt have since helped her realize she is not alone.
For consumers who decide to use buy now, pay later services, experts offer several precautions:
Read the fine print
The most familiar option is pay-in-four, which divides a purchase into four payments made every two weeks and generally carries a 0% annual percentage rate, or APR. But terms vary widely among buy now, pay later loans. Ed deHaan, a professor at Stanford Graduate School of Business, advises consumers to review the agreement carefully before making a purchase.
“Products marketed as buy now, pay later are appearing that are not favorable deals,” deHaan said. “Some impose substantial fees at the outset or when a borrower misses a payment.”
A missed payment can lead to late fees, interest charges or the loss of access to the service in the future.
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Know how it impacts your credit score
Buy now, pay later borrowing also does not always remain separate from a consumer’s credit history. While these loans once generally had no effect on credit scores, providers now report some lending activity to Equifax, Experian or TransUnion.
“Opening a buy now, pay later plan won’t necessarily affect your credit right away, but a missed payment can,” Rathner said. “That’s the point at which consumers need to be especially cautious.”
Credit reporting practices differ by provider. Affirm and Klarna, for instance, report to Experian and TransUnion, while Afterpay does not report to any credit bureau.
Only borrow what you can pay back
Before using buy now, pay later, deHaan recommends taking a moment to determine whether the payments will genuinely fit within your budget.
“The general advice for credit is that it’s very easy to spend and hard to pay off,” deHaan said. “And most of us, many of us, are not good at making good predictions about what we will be able to pay in the future.”
When using buy now, pay later, Brown set herself a limit of $100 a month across payments, and she avoids signing up for payments every two weeks and instead chooses the monthly payment options.
Avoid stacking plans
As with credit cards, you can sign up for multiple buy now, pay later plans. These loans can quickly balloon until they become unmanageable. If you don’t want to risk snowballing into debt, avoid stacking buy-now, pay later loans, said Carla Sanchez-Adams, senior attorney at the National Consumer Law Center.
“Avoid multiple purchases because then it gets really hard to track, especially if they’re with different companies,” Sanchez-Adams said.
If you have to utilize multiple loans, make sure you keep track of the payment amounts and dates so you avoid late fees, she added.
Seek out additional resources
Looking into additional resources such as food banks, SNAP or hardship help programs in your area can be helpful, Rathner said.
“If you are stretched thin for affording food and going into debt to do so, it could be time to seek out additional help,” she said. “So this is hopefully less of a struggle for you and your family while you’re going through this difficult time.”
Seek help from a nonprofit credit counseling agency
If you’ve reached a point where you have too many buy now, pay later loans and maybe some credit card debt too, it might be time to seek help from a credit counseling agency. Two well-known resources for finding nonprofit credit counseling agencies are the National Foundation for Credit Counseling and the Financial Counseling Association of America. Both can help you connect with certified agencies and counselors.
“You have financial stress, you have work stress, you have family stress,” Rathner said. “Get help with the financial stress because that can help you feel more in control of this area of your life. And it can help take one step at a time toward paying down your debts and feeling more in control.”
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