Buy now, pay dearly? (update)

Summary of Buy now, pay dearly? (update)

by NPR

25m•November 12, 2025
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Overview of Buy now, pay dearly? (update)

This Planet Money episode (originally reported in 2022, updated in 2025) explains what "buy now, pay later" (BNPL) is, why it exploded during the pandemic, how BNPL firms make money, who uses it, and the risks—told through the story of Amelia Schmarzo, a Gen Z college student whose BNPL use snowballed into serious short‑term financial pain. The update covers industry growth, demographic patterns, regulatory and credit‑reporting changes, and practical takeaways.

Key takeaways

  • BNPL is essentially short-term credit: you get the item now and pay in interest‑free installments (commonly four payments).
  • Approval typically requires only a soft credit check that doesn’t affect your score, and many BNPL transactions are not (yet) reported to credit bureaus.
  • Merchants pay BNPL firms significant fees (often 4%–9.5%), higher than typical credit card merchant fees (roughly 2%–4%), in exchange for higher conversion and access to new customers.
  • BNPL grew rapidly during the pandemic and is now used for many necessities (groceries, gas, healthcare), not just discretionary purchases.
  • Risks include stacking multiple BNPL plans across platforms (providers don’t see each other’s loans), late payments, and potential future credit reporting that could harm borrowers’ credit scores.
  • BNPL can be a better short‑term option than predatory alternatives (like payday loans) for emergencies, but it can be dangerous for impulse or recurring discretionary spending.

How BNPL works

Mechanics (for shoppers)

  • At checkout you choose a BNPL provider (Afterpay, Klarna, Affirm, Zip, Sezzle, Cherry, etc.).
  • You get approved via a light/soft check and pay the first installment immediately; the rest are automatically billed to your card or account over the next weeks/months.
  • Typically interest‑free if you pay on time; late fees or penalties may apply.

Why merchants use it

  • BNPL reduces cart abandonment and increases average order values by making big prices look like small monthly payments.
  • It brings in new customers (young people, those averse to credit), and lifts conversions enough for merchants to justify higher merchant fees.

How BNPL companies make money

  • Primary revenue comes from merchant fees—often substantially higher than credit card processing rates.
  • Additional income sources: advertising/partnership deals, late fees, and financing products for larger purchases (some BNPL firms and banks now offer longer-term installment loans with interest).

Who uses BNPL and emerging risks

  • Heavy users skew young (Gen Z) and include people who avoid traditional credit cards or have limited credit histories.
  • The Fed found Black and Hispanic women are about twice as likely to use BNPL than other groups.
  • BNPL users often already carry other forms of debt (student loans, car loans, personal loans).
  • Nearly half of BNPL borrowers missed payments last year (per episode), and regulators/credit bureaus plan to start incorporating BNPL into credit histories soon—raising the stakes for missed payments.
  • Marketplace expansion means BNPL is available for everything from sneakers to medical procedures and dental work—raising concerns about financing discretionary and high‑cost health spending.

Amelia’s story (narrative + 2025 update)

  • Spring 2020: Amelia (college junior) begins following influencers and uses BNPL (Afterpay, Klarna, Affirm) to buy clothing/footwear during pandemic lockdowns. Small installment amounts made expensive items feel affordable—“Monopoly money.”
  • Rapid escalation: multiple BNPL plans across platforms, credit card nearly maxed, bank account drained; terror upon seeing a $2,000 credit card statement and a near‑empty checking account.
  • Intervention: father refused to bail her out; she paid down balances and was lectured. Two weeks later she relapsed into BNPL spending again; eventually the volume and stress led her to quit BNPL cold turkey about two years ago.
  • Current status (2025): She’s paid off BNPL debt, doesn’t use BNPL or credit cards, works in influencer/brand partnerships, still sees BNPL options everywhere and declines frightening offers (e.g., financing lip fillers).

Practical advice & recommendations (when BNPL makes sense and how to avoid harm)

  • BNPL can be reasonable for a short-term, necessary purchase if you: (a) can clearly afford the installment schedule, (b) will not miss payments, and (c) have no cheaper option.
  • Avoid BNPL for impulse buys, multiple simultaneous plans, or elective medical/cosmetic procedures unless you fully understand the cost and risks.
  • Centralize payments: use one payment method you monitor closely so automatic withdrawals don’t surprise you.
  • Track all outstanding BNPL plans across platforms—providers don’t share data, so you must.
  • Build an emergency fund and prioritize avoiding high‑cost alternatives (payday loans).
  • Watch for credit‑reporting changes: late BNPL payments could soon affect credit scores.
  • If you’re already struggling: stop new BNPL purchases, prioritize paying off balances, and seek help (family, credit counseling).

Notable quotes / soundbites

  • Terry Bradford (Kansas City Fed): “It’s credit by another name.”
  • Amelia: “It literally felt like free money… Monopoly money.”
  • The episode frames the central question: If BNPL is interest‑free for consumers, “where’s the gotcha?”—answering that the business model shifts the cost to merchants and risk to consumers who overextend.

Credits & context

  • This episode is an update to a 2022 Planet Money story. Reporting updates and research from the Kansas City Fed and the Consumer Financial Protection Bureau informed the episode. BNPL firms named include Afterpay, Klarna, Affirm, Zip, Sezzle and Cherry. Expect BNPL to increasingly intersect with credit reporting and mainstream banking as banks respond with competing products.