This type of loan is exploding in popularity — but experts say your credit card is still better

San Francisco Chronicle​

24-05-2025

Buy Now, Pay Later lenders tout predictable payments and zero interest on purchases for those who don't want to — or can't — use a credit card. But data on both the companies that fund them and the people who use them show a troubling trend.
In Klarna's most recent quarterly earnings report, the financial technology company said its net loss for the first three months of 2025 was $99 million, significantly worse than its $47 million loss for the quarter last year. The fintech reported $136 million just in consumer credit losses, which is business-speak for 'people not repaying their loans.'
Those losses track with what surveys of Americans who use Buy Now, Pay Later loans have reported: People are having trouble paying them back.
Matt Schulz, chief consumer finance analyst for loan comparison site LendingTree, has been overseeing its Buy Now, Pay Later tracker since 2021. It's an annual survey of a representative sample of 2,000 Americans asking about their experience with Buy Now, Pay Later (BNPL) loans.
The most recent survey, published on May 5, found that 41% of people who'd taken out a BNPL loan had been late on a payment in the past year. In 2024, that number was 34%.
'The fact that 41% of Buy Now, Pay Later users say that they've paid late in the past year is really eye-opening,' Schulz said. 'It's confirmed for us that an awful lot of people pay late on these.'
How BNPL loans work
As data came in about borrowers using BNPL loans for everyday purchases like groceries, Schulz said he wanted to see how they functioned in practice. In April, he went on his phone and was able to secure five short-term loans in an hour from various BNPL lenders, including ones he could use at in-person stores. One app generated a virtual credit he used to buy shaving cream and a Mother's Day card at Target, and he used another app's virtual card to purchase a single bottle of Dr. Pepper and a jar of salsa at a grocery store — 'not what you would normally finance,' he said.
BNPL loans were originally sold as an alternative to credit cards or taking out loans for big-ticket purchases. Things like furniture, appliances, gaming consoles and designer clothes could be broken up into four interest-free payments, typically due every two weeks, so you could spread out the payments across your upcoming paychecks — in theory, without going into debt.
Over the last five years, use of these types of loans has exploded. Forty-nine percent of respondents to the LendingTree survey said they'd used them before. And the loans are being used to finance all kinds of things: A quarter of BNPL borrowers said they'd used them for groceries, according to LendingTree's tracker. Sixteen percent reported they'd used it to get takeout or delivery, a widely publicized option with Klarna and DoorDash. Around 60% of Coachella attendees this year said they'd used BNPL to pay for their tickets.
Klarna reported a delinquency rate of 0.54%, up from 0.51% at this time last year. That delinquency rate is quite a bit lower than the national average for consumer loans, currently at a 10-year high of 2.77%. A report published in January by the Consumer Finance Protection Bureau said the decreased default rate is likely due to a structural difference on how you pay the loans back: Most BNPL borrowers are forced to set up automatic repayments from their bank accounts or credit cards.
Though most BNPL loans are associated with short-term zero-interest installment loans, many lenders are branching out into longer terms with interest tacked on. Klarna's earnings report indicated 'strong uptake' of its more long-term financing products, including 6- and 12-month fixed-payment loans in the U.S. with a 19.99% APR. (For comparison, the average credit card APR this month is 24.28%, according to LendingTree.)
Though they sell themselves as the anti-credit card, some BNPL lenders 'are becoming increasingly credit-card-like' with these types of offerings, said Ted Rossman, a senior industry analyst at financial comparison site Bankrate.
Bankrate also recently published survey results about BNPL borrowers. Their results indicated 30% of Americans had used BNPL loans, and 16% of them had missed at least one payment.
Delinquency rates are typically calculated by taking the number of loans that are delinquent (often defined as being 30 or 60 days past due, or two payments behind; Klarna does not publicly explain how it defines delinquency) divided by the total number of loans the lender has on the books. So while 41% of BNPL borrowers told LendingTree they'd been late on a payment, those loans might not be considered delinquent by the lender. And Rossman said the Bankrate survey asked borrowers whether they had ever missed a payment, while earnings reports typically calculate delinquencies within the past quarter or past year. Klarna's earnings report says delinquency trends are improving despite the overall rate being up.
Many BNPL borrowers avoid falling too far behind because it means they won't have access to those loans any more, Rossman said. Klarna says it 'pauses' delinquent accounts.
When does taking out a BNPL loan make sense?
A short-term, zero-interest loan can make sense if, for instance, your car needs new tires, your refrigerator breaks down, or you need to buy groceries but your first paycheck from your new job won't land in your bank account for another week.
But LendingTree found 23% of borrowers had three or more BNPL loans at once. And, financial experts say, that method of stacking them up or using them for nonessentials like takeout or concert tickets — isn't a smart financial move. Falling into the habit of using BNPL loans for everyday purchases means you might find yourself in a position where you have to keep taking them out because too much of your future paychecks are going toward last month's groceries.
Amanda Henry, a Bay Area-based financial educator and career coach and author of 'The Financial Abundance Blueprint,' said that before someone takes out a BNPL loan, they should check in with themselves about whether it's a want or a need. If it is an emergency, explore getting a loan from a friend or family member.
A credit card is typically a better option than a BNPL loan, said Schulz of LendingTree. A BNPL loan might sell itself as zero-interest, but if you rack up late fees, you might wind up paying even more in total than you would have carrying a balance for a couple months on a card. Credit cards also offer rewards, purchase protection and benefits to your credit score for on-time payments — upsides that BNPL loans lack. A secured credit card can be a good alternative for people who don't have access to traditional credit cards.