More Americans miss payments on popular buy now, pay later loans

SALT LAKE CITY (KUTV) — More Americans are turning to buy now, pay later loans, or BNPL, to cover purchases — including groceries — as rising costs continue to strain household budgets.

While BNPL can help people who are short on cash, recent data from Lending Tree found nearly half of buy now, pay later users reported missing at least one payment, with many also paying late fees.

For Virginia Tefft, BNPL provided relief after she fell deep into credit card debt following a job loss.

BNPL allows consumers to split purchases into four payments over time. Unlike credit cards, BNPL loans typically do not charge interest, though consumers can face late fees if they miss payments.

“I liked that I could pay in smaller increments over time. It just made it more digestible for my bank account,” said Tefft, who now has a full-time job.

While she initially used BNPL for extras such as concert tickets, Tefft said rising costs eventually pushed her to use the loans for everyday expenses, including groceries. Health issues require her to buy higher-quality foods, which are often more expensive.

“It’s a struggle. I have a hard time even getting enough fuel in my car to get to and from work,” she said.

According to the Federal Reserve, use of buy now, pay later loans has increased about 20% annually since 2021.

In the past, many BNPL lenders did not require hard credit checks for approval and did not report payment activity to credit bureaus. Now, some larger lenders are reporting loans and missed payments to credit bureaus, meaning consumers who fall behind could see their credit scores affected, according to Thomas Nitzche, a financial educator with Money Management International, a nonprofit organization that helps consumers budget and get out of debt.

At the same time, Nitzche said some BNPL lenders have shown a willingness to reduce or waive late fees for customers who contact them directly and ask for assistance.

“But the issue is, in the last year, we’ve seen an increase in the folks that are making at least one missed payment,” he said.

Nitzche said one of the more concerning trends is the growing number of consumers using buy now, pay later loans for necessities such as food.

“I think about a third of folks are using BNPL for groceries. That’s concerning because you’d need groceries again before you’d be done paying off the first BNPL,” he said.

He also warned consumers can quickly become overextended when managing multiple BNPL loans at once.

“Just like any other consumer credit product, it’s really important not to get overextended,” he said.

While BNPL may be a better option than high-interest credit cards for some consumers, Nitzche said it still should be used carefully.

Tefft, who is now participating in credit counseling through MMI, said she prefers BNPL over credit cards because the repayment timeline is fixed and there is no compounding interest.

“It’s a much more structured system than credit cards. It gives people a better idea of how quickly they will be out of the debt they are signing up for,” she said.

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