By Cora Lewis
NEW YORK (AP) — More Klarna customers are struggling to pay back their “buy now, pay later” loans, the short-term lender said this week. This disclosure corresponded to reports by lending platform Bankrates and Lendingtree. This cited an increase in the percentage of all “buy now, pay later” users.
What’s been delayed or missed in installments are signs that hinder financial health among some of the US population, says some analysts that say the country’s total consumer debt has risen to a record $18.2 trillion, with the Trump administration moving to collect federal student loans.
Shoppers who chose to fund purchases through BNPL services tend to be younger than the average consumer, and last year’s Federal Reserve survey said black and Hispanic women are particularly likely to use plans that customers at all income levels are increasingly adopting.
“BNPL offers credit to financially vulnerable consumers, but these same consumers may be overexpanding themselves,” the author of the Federal Reserve Study writes. “This concern is consistent with previous research showing that consumers spend more when BNPL is offered at checkout, and using BNPL increases overdraft fees and credit card interest payments and fees.”
As Klarna increases its user base and revenue, the Swedish company said its first quarter consumer credit losses rose 17% compared to $136 million in January and March last year.
A company spokesperson said in a statement that the increase was a big reflection of the large number of loans Klarna made each year. The percentage of loans at the global level that were outstanding in the first quarter has increased from 0.51% in 2024 to 0.54% this year, with the company “no signs of weakened US consumers,” he said.
More consumers are using “buy now, pay later” plans
Buy now and pay for a later plan, and generally consumers split the purchase payment into 4 or fewer. Loans are usually sold as zero profits, and in most cases there is no need for credit checks or soft credit checks.
BNPL providers will encourage planning as a safer alternative to traditional credit cards when interest rates are high. The popularity of postponed payment plans, as well as the expansion methods that customers can use them, also attracted public attention.
When Klarna announced its partnership with Doordash in March, the news led to online comments that Americans were taking out loans to buy take-out food. Similar skepticism emerged when Billboard revealed that over half of Coachella’s participants used installments to fund tickets for the music festival.
In an April report from Lendingtree, about four in 10 Buy Now users said later plans were delayed in paying from one in three last year. According to a May report from Bankrate, about one in four loan users chose them because it’s easier to get than traditional credit cards.
According to the Consumer Finance Protection Agency, the six largest BNPL providers (Affirm, Afterpay, Klarna, Klarna, PayPal, Sezzle and ZIP) received approximately $277.3 million in loans in 2022 for $33.8 billion in goods or about 1% of credit card spending that year.
Industry with little scrutiny of regulations
The federal agency said this month it would not implement Biden-era regulations designed to put more boundaries around FinTech lenders.
Rules handled require you to buy now and pay later loans like traditional credit cards under the truth of the lending laws, disclose, refund processing, formal dispute process and other protections.
Regulations implemented last year prevented borrowers from being forced to pay auto-payments or being charged at multiple fees for missing the same payment.
The Trump administration said the non-enforcement decision “is interested in focusing resources on supporting hard-working American taxpayers,” and “instead we will maintain enforcement and supervision resources focused on threatening consumers, particularly military and veterans.”
Consumer advocates argue that customers seeking refunds without federal oversight, or who are seeking clear information about the structure and interest rates of BNPL fees, will have fewer legal action.
There is a risk to taking out an installment loan
Industry watchers point to consumers who can’t afford to pay back as the biggest risk of using BNPL. If the Credit Bureau does not track new forms of credit, there will be fewer safety measures and fewer surveillance.
Justine Farrell, chairman of marketing at the University of San Diego’s Knauss School of Business, said that if consumers are unable to make loans on time, it exacerbates the financial stress they are already experiencing.
Farrell, who studies consumer behavior and BNPL services, said: “Food costs continue to rise above rent and other products, which is why consumers are taking advantage of their ability to pay items later.”
The American Consumer Federation and other watchdog organizations have expressed concern about rollbacks of BNPL regulations as loan use continues to increase.
“By taking a real-world approach to the new universe of fintech loans, the new CFPB is once again supporting Big Technology at the expense of everyday people,” said Adam Russ, director of financial services at the American Consumer Federation.
The Associated Press is supported by the Charles Schwab Foundation for education and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
Original issue: May 21, 2025, 4:39pm EDT
