A staggering 91.5 million Americans used at least one buy now pay later service in 2025, according to BNPL market research conducted by researchers. This is not the behavior of a niche segment anymore. This is the behavior of a mainstream consumer credit product. Klarna’s customer base stands at 42.8 million people. Afterpay has 19.3 million BNPL users. There are also 16.4 million Affirm users and counting. Most people that use these services do not understand the risks involved, what it will really cost them if something goes wrong, and how their usage of one particular BNPL plan interacts silently with their other five ongoing plans at any given time. This article provides detailed information about how BNPL works, what the true cost of buy now pay later is, and when it helps you versus when it harms you financially.
Buy now pay later services operate by splitting a transaction into several installments that are made over six weeks without upfront interest charged. The revenue generation for BNPL operates via merchant fees and late fees, meaning that the product always looks free to the borrower right until the moment when it stops being free. According to the Consumer Financial Protection Bureau January 2025 BNPL market report, there were 335.8 million BNPL loans originating to the tune of $45.2 billion in just one year of 2023 alone.
How BNPL Actually Makes Money (It Is Not Your Interest Rate)
The actual business model of buy now pay later is not quite what BNPL lenders tell you. When Klarna, Afterpay, or Affirm tell you that you can make a zero interest purchase, they are technically right only regarding Pay-in-4 product, the one that splits your transaction into four installments over the course of six weeks. They never give you the full story behind how they make their money, what you are liable for if you default, and the cost of the extended payment plans.
The largest source of income for BNPL firms is the merchant. Every retailer that wants to offer Klarna or Afterpay pays interchange fees that typically range between 2% and 8% of the transaction volume. This cost gets passed onto the retailer, who absorbs this expense in return for increased sales volume. Your purchase is what gives them this money. You are the product of BNPL transaction.
The second source of income for BNPL lenders comes from the late fees. In 2023, 4.1% of all BNPL loans were subject to a late fee. This is a relatively low percentage considering the total number of BNPL transactions: out of the 335.8 million loans, there were 13.8 million loans that incurred late fees. Afterpay charges up to 25% of the transaction volume in late fees, while Klarna’s fee varies per loan type. Meanwhile, Affirm does not charge late fees but imposes straightforward interest rate that can be up to 36% APR.
Extended BNPL plans are where the interest-free framing becomes flat-out deception. Yes, a Pay-in-4 product split into four installments over six weeks really costs you nothing. However, the three-month, six-month, and twelve-month extended payment plans offered by Affirm and Klarna come at various APRs, ranging between 0% promotional APR and 36% APR depending on retailer and personal credit score. If you qualify for 36% APR BNPL on your purchase worth $800, you are paying for your laptop more than on many credit cards that offer lower APRs.
Pay-in-4 BNPL is useful for transactions that you intended to make anyway and wish to conserve cash flows for another four-six weeks before the payment starts coming due. BNPL extended plans are far less useful to the borrowers and far more useful to the retailers because the math behind APR calculation makes them often more expensive than regular credit cards if used responsibly.
The Hidden Problem: Loan Stacking and Simultaneous Debt
One of the most underreported issues in BNPL is that of loan stacking – the practice of having multiple BNPL plans at any given time. Very few BNPL lenders share their transaction data with competitors and/or with traditional credit bureaus, meaning that Klarna does not care if you have three ongoing Afterpay loans. There is no need to hide the truth from the lender here: the entire industry functions like this by design.
According to the CFPB, in 2021-2022 year periods, 63% of BNPL loans had been associated with other BNPL transactions at some point throughout that year. At the same time, 33% of people with BNPL loans were actively using more than one BNPL product at a time. An individual running four Pay-in-4 plans concurrently would be servicing 8-16 separate transactions per month, and none of the lenders knows about the other lenders and thus cannot calculate overall debt level.
The numbers are quite eye-opening regarding how BNPL influences consumer’s finances. According to CFPB, a person with a BNPL loan had, on average, $871 more in outstanding credit card debt compared to an individual with no BNPL loans. Causation was not conclusively proven in that case. Correlation was clearly visible: consumers who took out BNPL loans had much more debt total compared to people with no such debts.
I think the most hazardous feature of BNPL is the way the total debt is invisible and impossible to track. With a regular credit card, you check one statement at the end of the month and know your overall outstanding balance. With BNPL plans spread over Klarna, Afterpay, Affirm, Sezzle, PayPal Pay Later, and several other players on the BNPL market, your total debt will be split across five apps and five separate transaction histories, all of which operate independently.
The absence of psychological friction to make BNPL borrowing easier plays into BNPL lenders’ hands. Each transaction appears to be a minor expense that does not amount to a lot of money until it does.
BNPL and Your Credit Score: The Asymmetric Risk
One of the most confusing features of BNPL is its asymmetry in regard to FICO score. Punctual, perfect repayment of your BNPL installments will generally have no effect on your FICO score. Defaulting or seriously lagging in payments, however, will hurt your FICO score badly.
The CFPB concluded that most major BNPL providers, including Afterpay and Klarna, do not report their transaction activity to the major credit bureaus: Equifax, Experian, and TransUnion. This is not accidental; this is a product design strategy. Because BNPL operates through an alternative reporting structure and thus does not need to consult FICO score of potential borrower, BNPL allows those people to get loans. However, for the borrowers, this means that months or years of perfectly timely payments do not generate any FICO score boost.
Unfortunately, it is a lot more difficult for a BNPL user than that. In case a user becomes seriously delinquent on a BNPL account, it will most likely be sold to a debt collection agency. Such actions are reported to the credit bureaus. Thus, a default on a BNPL payment that starts with missing one small payment ($200) will turn into a collection account on your credit report and will decrease your FICO score anywhere between 50-100 points and stay there for seven years.
When BNPL Actually Makes Sense (and When It Does Not)
A BNPL account is better than no credit access when you are purchasing a necessary item and you do not have enough money in your bank account to pay the entire sum, yet you can cover it with six-week payment installments. Secured credit cards are a better option than BNPL in terms of helping people build their credit history since they report positive payment history to the credit bureaus and offer six-week payment periods as well.
Overall, BNPL itself is not predatory, but if used in the wrong situation, it makes debt growth invisible and does not create a financial backbone.
Use Case #1: You are making a necessary purchase, such as repairing an essential car component, purchasing some work-related equipment, or a health-oriented item like a medical device. This purchase requires the use of a very expensive credit card, and you do have enough income for making six-week payments with a zero interest rate. In this case, BNPL is a free cash-flow tool you use to avoid a much worse choice – putting your purchase on a card with a high APR. You are using it to ease your cash flow, not to buy something you cannot afford.
Warning Signs: Using BNPL to make purchases that you consider as discretionary: clothing, home devices, furniture. Using BNPL only due to the convenience of the four payments framework and thinking that it is cheaper and easier than a credit card because it does not show up on your report. Having more than two active BNPL services at once. Being late with payments on any BNPL service during the previous six months. Being able to make the same purchase using a credit card with zero APR during an introduction period. If any of these factors apply to your current situation, BNPL complicates and fragments your finances.
FAQ: Buy Now Pay Later in 2026
Does BNPL hurt your credit score?
BNPL is unlikely to positively affect your credit history because the most providers do not submit payment information to Equifax, TransUnion, or Experian; thus, having a BNPL account cannot improve your score. However, failing to pay BNPL debts or going through defaults will definitely have a negative effect on your credit score because the providers usually pass delinquent accounts to debt collection agencies, which do report to the credit bureaus. The effect of BNPL on one’s credit history is asymmetric: there is no chance of improving your FICO rating through BNPL payments, but there is a real threat of lowering it by defaulting. Thus, to improve your credit history, you should apply for a secured credit card whose providers send your on-time payments information to credit bureaus.
What happens if you miss a BNPL payment?
Every provider will have different consequences for late payment. In case of Pay-in-4, Afterpay charges up to 25% of the purchase cost as a penalty and limits your access to further borrowing. In case of Klarna, late fees depend on the state in which you live. Affirm charges no late fee on Pay-in-4 but applies it on their installment loans. If you default on a Pay-in-4 plan, your account will be blocked for making further purchases, and the loan will be sent to the debt collectors. The 2023 CFPB study reported that 4.1% of BNPL loans had at least one late fee, totaling millions of individual cases.
Which BNPL service is the most trustworthy?
In case of BNPL companies, Affirm has the advantage of being completely transparent in regard to total costs. Unlike Klarna and Afterpay, which use Pay-in-4 only, Affirm also offers a choice of zero percent short-term loans and longer-interest bearing ones, the latter with explicit APRs. Klarna has the largest market share in the United States (42.8 million users as of 2024), whereas Afterpay is known for being the simplest product but lacks flexibility.
Is BNPL better than a credit card?
For purchases that you are going to repay within six weeks, Pay-in-4 is a better choice than using a credit card since it sets up a forced repayment schedule that does not allow the balance to grow. In all other cases, you should consider using a credit card issued by a big bank (Chase, Citibank, Discover) with a low APR introductory offer, which will save you money in addition to letting you build your credit history. The fact that, according to CFPB, BNPL users carry $871 more in credit card debt than others indicates that the two products are often complementary.
What to Do in the Next 24 Hours
Now, if you currently have active BNPL services, please open every BNPL app on your phone right now and write down all your outstanding payments. Add everything to the total cost. This will be your overall BNPL debt. The experience of looking at the total will be very different from looking at every loan separately. If your overall cost surprises you, you have received an unexpected piece of information.
Moving forward, try the following strategy: before applying for any Pay-in-4, ask yourself two questions. First, do I have enough money for buying this item without borrowing? Second, will I have no objections if I see this purchase as a charge on my credit card statement? If your honest answer is “no” to any of these questions, BNPL is doing its job of persuading you to buy something unaffordable.
Conclusion: BNPL is a neutral financial product with a particular narrow application – free six-week bridge financing on purchases you intended to make. Outside this context, debt fragmentation, credit reporting asymmetry, and loan stacking practice makes it a convenient but complicated financial product. Knowing how it works is the first step towards using BNPL effectively.