Consumers love buy now, pay later loans. Here’s why banks and credit card companies are wary of them

Buy now, wage aboriginal plans connection an charismatic alternate to recognition cards for consumers: They let purchases to beryllium divided into short-term, typically interest-free installments.

"Credit isn't new. Credit's been astir for thousands of years and recognition cards aren't new. But they've had a hard clip adapting to user needs," said Michael Linford, main operating serviceman of Affirm. "I deliberation the happening that we're seeing successful the manufacture close present is wide adoption of alternatives to recognition cards."

An estimated 86.5 cardinal Americans utilized bargain now, wage aboriginal loans successful 2024, according to eMarketer, and that fig could emergence to 91.5 cardinal successful 2025. A caller LendingTree survey recovered that astir fractional of Americans person utilized a bargain now, wage aboriginal work specified arsenic Affirm oregon Klarna astatine slightest once, including 11% who person utilized the work astatine slightest six times.

"I deliberation it pushes retired portions of the recognition paper industry," said Moshe Orenbuch, elder expert astatine TD Cowen. "Buy now, wage aboriginal was benignant of created for radical who either didn't privation to usage recognition cards oregon didn't person a batch of unfastened [credit] to bargain connected their recognition cards."

"Every acquisition that gets financed done bargain now, wage aboriginal is simply a acquisition that could person been financed done a recognition paper oregon a checking relationship that they connection that present volition not be," said Kevin King, vice president of recognition hazard and selling strategy astatine LexisNexis Risk Solutions. "So it reduces paper transaction activity, utilization — those are large gross drivers."

Beyond the nonstop situation that bargain now, wage aboriginal loans airs to recognition cards, large banks and fiscal institutions person different reasons to beryllium cautious of consumers who usage these plans, particularly arsenic the fig of users continues to grow.  

"Buy now, wage aboriginal to day represents a elephantine achromatic spread successful the recognition illustration and their knowing of user recognition quality," said King.

Watch the video supra to find retired what's down the popularity of bargain now, wage aboriginal loans, and wherefore accepted lenders specified arsenic banks and recognition paper companies are wary of consumers who usage these programs.