A new addictive craze has swept through first-world economies. Particularly targeting young adults, the ‘Buy now Pay Later’ short-term financing option can be used on a range of products from Coachella tickets to getting burritos delivered. Initially, this seems to be a force for good for the economy as it can allow economic agents to smooth their consumption over time, but there is a dark underbelly to this fascinating new frenzy.
BNPL may seem convenient, but it’s leading many young adults into debt traps, while fuelling risky levels of consumer credit that threaten broader economic stability.
Convenience Meets Instant Gratification
In an age where everything is one tap away, the rise of Buy Now, Pay Later services feels almost inevitable. Platforms like Klarna, Clearpay, and Afterpay have seamlessly integrated into online checkouts, offering consumers the ability to split payments over weeks or months, often with zero interest and no upfront cost. For many, especially younger consumers, it feels like free money.
BNPL companies have positioned themselves as the anti-credit card. They market aggressively to Gen Z and millennials with influencer sponsorships and promises of financial flexibility. No jargon, no scary interest rates, just easy, interest-free shopping.
The process is so frictionless that the financial weight of a purchase is dulled. With just a few clicks, consumers can walk away with clothes, tech, beauty products, or even groceries, all without any money leaving their bank account that day. This creates an illusion of affordability: it feels like you’re spending less when you’re really committing to more.
In the UK, a 2023 Financial Conduct Authority (FCA) review found that over 27% of BNPL users aged 18–24 were using multiple providers simultaneously, stacking debts that were largely invisible to traditional credit checks. In the US, the Consumer Financial Protection Bureau (CFPB) reported a sharpuptick in BNPL transactions for non-essential goods, particularly during sales events like Black Friday, where purchases spiked by more than 50% year-over-year
The Economic Impact — A Growing Non-Housing Debt Crisis
taking on growing levels of short-term, unsecured debt with little visibility or regulation. These debts don’t show up in traditional credit assessments, meaning many consumers are overextended without even realising it. Worse, lenders can’t see the full picture either, leading to a false sense of creditworthiness and systemic blind spots.
This kind of debt is unstable. Unlike traditional loans, BNPL payments are often short-term, fragmented, and dependent on timely wages. A missed pay check or unexpected expense can lead to acascade of defaults, especially for consumers juggling multiple plans. As delinquencies rise, so do collection costs and credit downgrades, placing strain not just on individuals but also on the financial ecosystem supporting these platforms.
BNPL also distorts economic signals. It inflates retail demand artificially, giving the illusion of stronger consumer spending while hiding the fragility behind it. This creates a dangerous feedback loop: central banks see inflated consumption and delay rate cuts, while consumers, burdened with silent debt, reduce real long-term spending, slowing economic recovery.
Unchecked, this trend could mimic the warning signs of past credit bubbles: easy access, poor oversight, overleveraged consumers, and a sudden tightening of conditions once defaults rise.
Why It’s a Trap — and Why It Works So Well
At the heart of the trap is what psychologists call “present bias”, which is our tendency to overvalue immediate rewards and undervalue future consequences. BNPL plays directly into this. The consumer sees a £100 jacket but only has to pay £25 today. The immediate gratification is high, while the financial pain is delayed and fragmented into smaller, forgettable payments.
This payment smoothing masks the real cost. Financial friction is removed, and with it, the pause for reflection that often prevents impulsive purchases.
Then there’s the issue of stacked borrowing. Unlike credit cards, which have a visible limit and centralised tracking, BNPL platforms rarely communicate with each other or report to credit agencies. This means users can unknowingly rack up debts across Klarna, Clearpay, and others often without any one provider seeing the full extent of the consumer’s obligations.
BNPL also benefits from a powerful psychological illusion: because there’s often “no interest,” users assume there’s no risk. But fees from missed payments can accumulate quickly. In some cases, these fees rival or exceed credit card interest rates, and because repayments are short-term, there’s little flexibility once someone falls behind.
These platforms are not passive fintech services. They’re engineered to drive sales. Many are deeply integrated with e-commerce sites, pushing BNPL options at checkout and using behavioural nudges like “90% of shoppers choose Pay in 3” to normalise the decision. Some even offer exclusive discounts for choosing BNPL, further distorting consumer judgment.
A Warning Sign, Not a Solution
What began as a convenience has quietly morphed into a widespread form of unregulated consumer debt, growing in the shadows of traditional lending. As more users juggle multiple BNPL repayments for short-term wants, they risk falling into a cycle of dependency, normalising debt as a way of life instead of a last resort. Worse, these behaviours are being embedded early in the financial habits of a generation already navigating record inflation, stagnant wages, and rising living costs.
And it doesn’t stop at the personal level. At scale, BNPL is contributing to a broader economic imbalance, masking vulnerability behind inflated consumption, encouraging reckless borrowing, and building a fragile base of unsecured, non-housing debt.
The answer isn’t to ban BNPL, but to recognise it for what it really is: credit, with all the risks that come with it. Regulators, educators, and financial platforms must act decisively, whether by enforcing stricter oversight, improving transparency, or investing in financial literacy programs that empower young people to make informed decisions.
BNPL may promise short-term convenience, but its long-term consequences demand our full attention.
