‘Buy Now, Pay Later’ Booms as Economic Pressures Mount

The economic winds whipped up by President Trump’s “Liberation Day” tariff proclamations in early April have been anything but a gentle breeze. Rising prices, fomenting trade wars, and uncertainty about when tariffs will go into effect has led to a volatile economic climate.

People looking to buy electronics and other goods affected by the tariffs are trying to figure out whether they should wait it out to see if the administration’s trade policies become more favorable, or quickly scoop up what they can while prices are still cheap-ish.

For consumers weighing a purchasing decision, buy now, pay later services like Klarna, Affirm, and Afterpay are offering to make that choice easier.

These companies make a relatively straightforward case: Spread out the cost of a purchase into smaller, more manageable payments over the course of a few weeks or months. Because BNPL services make deals with the sellers they’re providing the payment plans for, the companies behind the BNPLs don’t charge interest to the customer. So instead of spacing out a purchase with a credit card, say—which usually charges a high interest rate—BNPL would get you that thing you want for the listed price.

BNPL companies don’t require you to have good credit, and they only charge fees if you’re late with your payments. Otherwise it’s a nice free amenity—and one that might indicate bigger financial troubles across the economy.

Nadine Chabrier, ​​senior policy council at the nonprofit Center for Responsible Lending, says it is easy to see why BNPL services are appealing. “The top reasons consumers use buy now, pay later is because they can't afford the full cost of the item at once,” she says. “Another reason is because there's a higher approval rate. It's that convenience factor.”

Economic uncertainty—over tariffs, rising inflation, and the possibility of a looming recession—is giving consumers pause about stretching their limited funds. It’s rocky times like these when BNPL services become even more appealing.

“BNPL really skyrocketed in adoption during the pandemic,” says Matt Gross, a spokesperson for Affirm. “It may not be as high-growth now as you saw in 2020, 2021, when everyone was stuck at home shopping online, but we're still growing at orders of magnitude faster than broader spending and consumption levels.”

Economic watchdogs have concerns about BNPL. The services often appeal to people with lower incomes, who financial experts have warned may be at risk of financially overextending themselves. Still, BNPL services are now woven into nearly every digital payment platform, and people have come to rely on them. PayPal offers it now, letting you spread out payments of almost anything. Klarna has partnered with DoorDash, so you can pay for your family’s dinner in weekly installments. And people aren’t just using them for electronics and pizza delivery, but also for basic essentials: A recent study found that 25 percent of BNPL users in the US were relying on the services to cover the costs of food and household sundries.

“Before tariffs even came into the picture, people were already using BNPL for gas and groceries,” Chabrier says. “We're already talking about folks who may not have a lot of money or credit to spare. Additional economic stress could be hard.”

“Absolutely, this is a leading indicator of financial distress,” says Martin Kleinbard, founder of the consultancy firm Granular Fintech who formerly worked at the Consumer Financial Protection Bureau and coauthored a CFPB report about BNPL. “Consumers are smart. They understand where they’re getting the lowest-cost-of-credit option here and are going to avail themselves of that for the goods they have to get.”

Kleinbard says that in terms of acquiring debt, BNPL services can be more forgiving than high-interest loans like credit cards and payday loans.

“BNPL has grown rapidly over the last five years,” Kleinbard says. “But it's still a tiny, tiny fraction of the overall spending and borrowing pie. You really have to think about it in the context of the alternatives. If the alternative is you were going to borrow anyway and it's an important purchase, then this is a pretty damn good option. This isn't a product with a lot of gotchas.”

Economically, lots of people have compared the looming uncertainty of the tariff situation with that of the pandemic. But Gross says Affirm has weathered the storm before and doesn’t expect this economic shakeup to be all that different.

“I wouldn't go so far as to say this is an opportunity for us, other than to say that I think the last several years and years into the future is an opportunity,” Gross says. “People are shifting their payment preferences to favor these types of products. And so in that sense, we are trying to be their favorite way to pay—not just when things are uncertain, but all the time.”

Shawn DuBravac, chief economist at the analyst firm IPC, says he agrees this is indeed a moment for buy now, pay later services, for better or worse. It’s a service that’s growing during a time of uncertainty that will make the service more appealing. The financial leg up it provides can indeed be helpful, but DuBravac cautions that the benefits are likely not evenly distributed.

“This could be a very good thing for some people; this could be a great service that could help them through a tough week,” DuBravac says. “But you can't get around the fact that people who are using it then might have all of a sudden a downturn in their job. They lose their job, their household goes from two incomes to one income, all of a sudden they're strained.”

As with any loan, both the borrower and the lender incur risk. DuBravac says this moment, if the economy truly does spiral, may be the first real test of whether the BNPL industry is stable enough to keep themselves and their borrowers afloat. How well that system maintains in the face of financial downturn really depends on whether people are using it as a convenience or out of necessity.

“Are they using it as a bridge or are they using it as a crutch?” DuBravac says. “If they're using it as a crutch, then I think there's a lot more risk there.”