Buy now, pay later debt grows but is hidden from credit bureaus

Adobe Analytics projects that buy now, pay later loans could drive as much as $84 billion in spending in 2024. But the debt shoppers are racking up is basically hidden from credit bureaus, lenders and economists.

Consumers are continuing to embrace buy now, pay later loans. After all, they’re an option that is as easy as pressing a button on checkout, they’re interest-free, and you don’t need a credit card.

In a report out this week, Adobe Analytics projects usage could drive as much as $84 billion in spending in 2024. That would be a 13% increase over last year.  

But all the debt shoppers are racking up on platforms like Klarna and Afterpay is basically invisible to credit bureaus, lenders and economists.  

The BNPL boom is concentrated among a certain type of consumer, said Sheridan Trent with the payment analytics firm TSG: “Among the younger generations, we’ve seen increasing adoption each year. And it’s just because they’re becoming more familiar with it.”

While it allows them to borrow with no or a less-than-stellar credit history, these platforms aren’t reporting most loans and delinquencies to credit agencies.  

“Frankly, many participants in the ecosystem may not have a full picture,” said Delicia Reynolds Hand with Consumer Reports.  

When shoppers lean on buy now, pay later instead of a credit card, she said that obscures negative and positive borrowing behavior on their credit report.  

And for economists and policymakers, “it kind of leads to an underestimation of the true debt burdens shouldered by households,” Reynolds Hand said.

Unless regulators require more transparency, she added that the youngest consumers’ borrowing habits are kind of a mystery.