Survey: 56% of buy now, pay later users have experienced issues like overspending and missing payments

With money being tight, buy now, pay later (BNPL) has quickly become one of America’s go-to payment methods. Over a third of U.S. adults (39 percent) have used at least one of these services at checkout, according to a new Bankrate survey.

BNPL allows consumers to split purchases into a series of interest-free installments, typically spread over a six-week period. Requirements are quite flexible — most lenders only ask for a few contact details and payment information for approval.

But the easy access to credit and bite-sized payment structure doesn’t come without faults. Most BNPL users (56 percent) say they’ve experienced at least one problem, like overspending, missing payments and regretting purchases, while using the service.

Bankrate’s buy now, pay later insights

Bankrate insights

• Buy now, pay later has become more widespread among Americans. 39% of U.S. adults say they have used at least one buy now, pay later service. PayPal Pay in 4/Pay Later (16%), Affirm (12%), Afterpay (12%) and Klarna (11%) are among the most widely used services.

• More than half of surveyed users experienced issues related to the service. 56% of users say they experienced at least one problem while using a BNPL service. Overspending (29%), difficulty returning a purchase/obtaining a refund (18%) and missing payments (18%) are among the most common ones.

• Spreading out cash flow is the main reason for BNPL usage. 50% of users chose this payment method to stretch their cash flow — more than any other reason. The appeal of low/no interest rates came in second at 37%.

• Millennials are the most likely to have used buy now, pay later. 55% of millennials reported using BNPL — the largest percentage across generations.

• Urban residents use this payment method more than others. 46% of urban residents say they have used a BNPL service, compared to 35% and 34% of rural and suburban residents, respectively.

Nearly 2 in 5 Americans have used at least one buy now, pay later service

As budgets grow increasingly tighter, financing basic purchases has become more common. Given ongoing financial constraints, it may not come as a surprise that 39 percent of adults in the U.S. have used at least one buy now, pay later service. Though there are over a dozen lenders providing this service in the U.S., users seem to gravitate more toward four lenders, according to Bankrate:

• PayPal in 4/Pay Later (16 percent)

• Affirm (12 percent)

• Afterpay (12 percent)

• Klarna (11 percent)

As more people turn to BNPL services, it is important to keep in mind credit reporting is moving very slowly for these companies. Despite some of the most popular apps having been around for over a decade now, buy now, pay later plans have largely not been accounted for in credit scores. In fact, Apple is the first to report customers’ pay-in-four plans to a credit bureau — and only to one, Experian.

“For better or worse, BNPL is still mostly outside the credit reporting system. I say for better because if you’re late with a BNPL payment, it probably won’t hurt your credit score — until you’re really late, that is,” points out Bankrate senior industry analyst Ted Rossman.

“If you fall so far behind that you get sent to collections, that would really hurt your credit score. But that often doesn’t happen until you’re over 90 days behind. With a credit card, on the other hand, a 30-day late payment could have a substantial negative impact on your credit score.”

Of the 56% of users who have experienced problems related to the service, Gen Z encountered the most issues

No credit product is perfect, and buy now, pay later users are experiencing friction. Most U.S. adults who have used buy now, pay later (56 percent) have experienced at least one issue with the service. Overspending (29 percent), missing a payment (18 percent) and difficulty returning items or getting a refund (18 percent) are among the top problems that users have experienced.

A smaller number of users also said they’ve regretted a purchase (17 percent) or have felt dissatisfied with at least one purchase/experience (17 percent).

Gen Z users of BNPL services by far are more likely to have experienced problems, with 76 percent of users facing at least one issue related to the service. Though somewhat behind, a large number of millennials (65 percent) are more likely to have also had trouble when using BNPL.

Conversely, older generations seem to have a better experience. Over half of Gen Xers (58 percent) and boomers (68 percent) said they hadn’t faced any issues related to the service.

BNPL usage is consistent across income levels

Usage of buy now, pay later is often linked to those who may only qualify for bad credit loans or who may not qualify for traditional credit at all, and those who may be more financially stretched. However, Bankrate’s findings show that BNPL usage is highly consistent across household incomes, with very slight differences.

This consistency may be in part thanks to widespread efforts on the part of lenders to make this payment method widely available and convenient for users.

“In recent years, Affirm and Klarna have introduced debit cards that make it easier to use BNPL in-person at grocery stores or gas stations, in addition to online retailers, where most BNPL sales have taken place historically,” Rossman says.

Close to half of urban residents have used BNPL services, compared to roughly a third of rural and suburban residents

Bankrate data found that BNPL use is more popular among those living in cities, with almost half of those who live in urban areas (46 percent) saying they have used a BNPL service.

“Higher living costs could be part of it,” Rossman says. “I think there’s likely also an age correlation — I think of BNPL as often appealing to urban young professionals.”

By contrast, only 39 percent of those living in towns and roughly a third of rural and suburban residents (35 percent and 34 percent, respectively) say they have used BNPL.

Over half of millennials have used BNPL services, compared to 1 in 4 boomers

Unsurprisingly, buy now, pay later is more widely adopted among younger Americans, with 55 percent of millennials and 51 percent of Gen Zers saying they’ve used it. In comparison, less than a third of Gen Xers (31 percent) say they have used BNPL services and only a quarter of boomers (25 percent).

“I think access to credit is a big part of why young adults are drawn to BNPL,” Rossman says. “It has gotten harder to obtain credit cards over the past 15 years or so and BNPL is a readily available alternative.”

Recent credit denial trends support Rossman’s point — half of would-be borrowers in the U.S. who have applied for a loan or financial product since March 2022 have been denied.

“Today’s young adults also tend to have hefty student loan burdens and are wary of taking on other debts as a result,” Rossman adds. “And while the cost of living has risen for everyone, I’d argue this burden has fallen hardest on young adults whose salaries haven’t kept pace with rising higher education and housing costs.”

While older adults are less likely to use BNPL, when they do, they’re mainly motivated by the potential of saving money.

When asked about why they chose this payment method, over half of boomers (55 percent) and almost half of Gen Xers (47 percent) said their choice was, at least in part, due to the low interest rates. Just over a quarter of Gen Zers (26 percent) and millennials (29 percent) chose this as a reason to use BNPL services.

Half of users used a BNPL service to stretch their cash flow — more than any other reason

Years of stubborn inflation have significantly impacted Americans’ budgets — especially those of young people. This may be one of the reasons why buy now, pay later continues to rise in popularity, as most users said they wanted to pay in installments/spread the cashflow (50 percent).

“The personal saving rate is way down, credit card debt is up and BNPL usage has been surging,” Rossman says. “A lot of people are looking for credit to make ends meet. BNPL is readily accessible and sometimes feels more responsible than credit card debt.”

But the appeal of BNPL goes beyond the smaller payments. Low/no interest rates (37 percent), payment plan predictability (33 percent), easy access to credit (27 percent) and feeling it’s more responsible than using a credit card (26 percent) are additional reasons surveyed users chose this option.

Tips to avoid overspending with buy now, pay later

“With BNPL, it’s easy to trick yourself into thinking you’re only spending $50 here and $50 there. But all of those biweekly installments can add up, especially if you have multiple plans running at the same time,” Rossman says.

“BNPL terms vary widely. Sometimes it’s four interest-free payments over six weeks, other times the plan can stretch on for many months or even years. And while some of those longer plans charge a low interest rate — or no interest at all — other times there is an interest rate and it can be even higher than what a credit card would charge.”

If used responsibly, BNPL can be a great tool to finance a big expense, while avoiding interest. Consider the following before hitting “checkout” next time you use the service.

1. Set up a budget

Always review your cashflow to see how much extra cash you have at the end of the month. Consider upcoming expenses, such as doctor visits, sports or recital fees for your kids or that new set of tires you need on your car, before you commit to a new debt.

2. Don’t buy on impulse

Buy now, pay later can quickly turn to “bought then, regret later” if you’re buying something you want but don’t really need. The initial joy of the purchase may wear off when you’re making bi-weekly payments on it for the next two months.

3. Read the terms carefully before applying

BNPL services may charge late fees, so ensure you understand the repayment schedule. If you set up automatic payments, ensure funds are in your account to avoid overdraft or returned payment fees.

4. Limit the number of concurrent plans

Holidays have a special way of getting people caught up in a buy now, pay later frenzy of shopping and events. If multiple family members are shopping, coordinate with everyone to make sure you know who is applying for what so you can keep track of how much you’ll be paying when the payments start.

Frequently asked questions about BNPL plans

• How does buy now, pay later work?Buy now, pay later services allow you to finance a purchase by making low-interest or interest-free installment payments over a set time period. The purchase cost is split into four to six installments, paid bi-weekly until the balance is paid off.

• How is buy now, pay later different from credit?The biggest difference is that buy now, pay later plans typically don’t require paying any interest, and the payments are fixed. Personal loans, credit cards and other forms of credit do require interest payments.
  
  
  Additionally, most BNPL lenders only do a soft credit check to approve you for plans, whereas traditional credit requires a hard credit inquiry, which could temporarily impact your credit.

• What happens if you miss a buy now, pay later payment?You may have to pay late fees, and late payments could be reported to credit bureaus, which could damage your credit scores. You can ask to extend the payment, but the lender may flip your BNPL plan to a regular credit line that charges interest and fees.

Methodology

Bankrate commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,276 U.S. adults, of whom 875 have used Buy Now Pay Later services. Fieldwork was undertaken between March 4-6, 2024. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.