Buy Now, Pay Later

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Buy Now, Pay Later (BNPL) is a financing option for online purchases that allows consumers to pay for items in four installments. Companies such as Klarna, Affirm, PayPal, and Apple Pay offer Buy Now, Pay Later loans at the check-out of online retailers, advertising four low payment installments. Because the lenders generally commit soft credit checks and offer interest-free installments within a short period, BNPL is highly targeted toward those who have bad or no credit at all. It disproportionately affects vulnerable consumers, leading to major criticisms of predatory lending.

How it works

When purchasing an item, the customer is contractually obligated to make installment payments on the item being purchased without interest. Plans can be divided into equal parts in which the customer will pay until the item is completely paid off. Payment plan agreements can be quite flexible ranging from weekly, bi-weekly and even monthly depending on the agreement. Missing a payment can incur late fees (which do incur interest), account fund freezes, or in worst-case scenarios, is sent to a debt collector which can affect the customer's credit score.

Why it is a problem

Lack of regulation

Buy Now, Pay Later's short-term payment plans and lack of immediate interest make it possible for lenders to operate outside the laws and regulations of traditional credit card companies^{[citation needed]}. In most countries, credit is defined by predetermined criteria that many BNPL fintechs purposely avoid, allowing them to act unregulated on mass populations around the world.

Ease of debt

Many credit lenders offer soft credit checks and low interest rates to entice non-creditworthy consumers. While these practices do have some benefit, particularly for financially aware individuals seeking to improve credit, these enticements often bring in consumers who are more vulnerable. Buy Now, Pay Later lenders are especially egregious in advertising to vulnerable consumers, often advertising alongside necessary online purchases such as groceries and even rent and utilities. The lack of safeguards that come from hard credit checks and interest rates means that more consumers are accruing easily avoidable debt.

No safeguards

Credit card companies are legally obligated to report to the major credit bureaus such as Experian, TransUnion, and Equifax. Without reporting consumer information, BNPL lenders avoid common safeguards like spending limits, thus allowing consumers to accrue hundreds or even thousands of dollars in debt that otherwise wouldn't have been possible. This is particularly harmful because consumers tend to believe, and the lenders tend to advertise, that BNPL services are a safer option compared to traditional credit cards.

Data Harvesting

"BNPL lenders have access to the valuable payment histories of their customers. Some have used this collected data to create closed loop shopping apps with partner merchants, pushing specific brands and products, often geared toward younger audiences. As competitive forces pressure the merchant discount, lenders will need to find other sources of revenue to maintain growth and profitability. The Bureau would like to better understand practices around data collection, behavioral targeting, data monetization and the risks they may create for consumers".

Regulations

The prevalence of Buy Now, Pay Later loans has been most notable since the COVID pandemic in 2020, a time where people had done a lot of shopping online at home. Because of this recent time-frame, legislation has been slow to mitigate the widespread effects. Most countries simply tacked BNPL services onto pre-existing banking laws^{[citation needed]}, but this has left many gaps in how the service is regulated.

United States

The Consumer Financial Protection Bureau (CFPB) is a government agency designed for consumer protection from financial institutions. The agency first opened an inquiry into BNPL lenders in 2021, and it issued orders to collect information from Affirm, Afterpay, Klarna, PayPal, and Zip due to concerns of "accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology". In May of 2024, the agency issued an interpretative rule stating that Buy Now, Pay Later lenders are, in fact, credit card providers and are therefore subjected to the same federal regulations and consumer protections, particularly the Truth in Lending Act (TILA).

However, in March of 2025, the bureau rescinded their interpretative rule after the Financial Technology Association (FTA), a lobbying organization for fintech companies, filed a complaint against the bureau for its interpretative rule, as well as after the bureau itself fell under new leadership within the Trump administration. The FTA's complaint was filed less than six months after the bureau's interpretive rule, and in the complaint, the FTA alleges that the bureau did not follow correct protocol, contradicted the Truth in Lending Act, and argued that credit card regulation was "a poor fit for BNPL products".

New York's Buy-Now-Pay-Later Act

On May 9, 2025, New York included in their budget legislation (Senate Bill 3008) the Buy-Now-Pay-Later Act (Article 14-B) to regulate BNPL lenders by requiring state licensure and other regulations.

One major criticism of this bill is that it only affects banks within the state of New York, while national and foreign entities are not required to follow the guideline^{[citation needed]}.

Buy-Now-Pay-Later Lenders

• Affirm
• Afterpay
• Klarna
• Abunda
• PayPal
• Apple Pay