Buy Now, Pay Later: Is it really better than a credit card?

As Buy Now, Pay Later (BNPL) services like Klarna, Afterpay, and Affirm become more common at online checkouts, more consumers—especially younger ones—are using them to finance everything from groceries to furniture. In this edition of Your Money Matters, News On 6’s Dave Davis sits down with Ted Rossman, senior finance analyst at Bankrate, to unpack how BNPL works, who’s using it, and what to watch out for before clicking “pay in 4.”

Watch the full video below:

What is Buy Now, Pay Later and how has it changed?

Ted Rossman: This is a group of services that started mostly as four interest-free payments over six weeks. A lot of these providers are about 10 years old, but it really caught on during the pandemic. It used to be primarily online, but now it’s moved into the physical world. Companies like Affirm, Klarna, and Afterpay now have physical payment cards you can use at grocery stores, gas stations, and more. Also, the plans are lasting longer—maybe six months, a year, or even several years. Many of those longer plans charge interest—15%, 20%, even more. It’s a bit ironic that an industry that marketed itself as an anti-credit card is becoming more credit-card-like over time.

Why do some users think BNPL is more responsible than using credit cards?

Rossman: It feels more responsible because there’s a built-in light at the end of the tunnel. You know exactly how much you owe and for how long—maybe six payments of $100. With credit cards, minimum payments can drag on for decades. People like the predictability and the ability to spread out their cash flow in a structured way.

What problems are people experiencing with BNPL?

Rossman: We’re talking about overspending, missed payments, regretted purchases, and trouble with returns or refunds. Overspending is the biggest issue. It’s like an infomercial—suddenly it’s not a $200 purchase, it’s four easy payments of $49.99. You can trick yourself into buying more than you can afford, and it gets more confusing if you have multiple plans running with different providers.

Who uses BNPL the most?

Rossman: Gen Z leads the way, with Millennials not far behind. There’s a big drop-off after age 40. The conventional wisdom is that BNPL appeals to younger people with limited credit history or income. That’s still mostly true, though we’re seeing more middle- and higher-income households using it too. It also tends to appeal to those with lower credit scores who might not qualify for traditional financing. Used carefully, it can be a good option—especially for a big, planned purchase like a couch or refrigerator—not for daily things like gas or groceries.

Do younger users regret their purchases?

Rossman: Yes—26% of 18 to 28-year-olds regretted a BNPL purchase. For people in their 20s and 30s, these decisions can compound with student debt and other financial obligations. Nonprofit credit counselors are seeing more clients with BNPL debt. It’s similar to credit cards—it can be useful or dangerous depending on how you use it. We hear about college students who went on shopping sprees and didn’t realize how fast those small purchases added up.

How does interest work with BNPL?

Rossman: The typical six-week plans are usually interest-free—but double check. The longer-term plans, like six months or a year, often come with interest—15%, 20%, or even up to 36%. Rates vary by provider, the merchant, your credit score, and other factors. Some providers use data science in interesting ways—for example, Affirm says delinquencies spike at 2 a.m., so they might decline transactions at that time. Bottom line: read the fine print and know your terms.

What happens if you miss a payment?

Rossman: Surprisingly, delinquency rates are lower than for credit cards. Some providers don’t even charge late fees, and it usually won’t affect your credit unless it goes to collections. The biggest motivator is the carrot—not the stick. People want to keep using the service, so they pay on time. If you fall behind, you may be blocked from using it again—and that’s proven to be an effective incentive.

Are BNPL companies required to send statements?

Rossman: That’s changing. The CFPB under Biden tried to regulate BNPL like credit cards—monthly statements, credit reporting, etc.—but under the Trump administration, those rules were rescinded. So now it’s more of a gray area. These companies aren’t necessarily required to follow traditional lending laws. Some voluntarily comply, and many have improved their practices, but it still largely falls on the consumer to stay on top of payments—autopay can help.

For someone still unsure about BNPLs, what’s your elevator pitch?

Rossman: It’s installment lending. You commit in advance to pay a fixed number of payments—say four payments of $25—and you get the product up front. It’s kind of like reverse layaway. Instead of paying it off and then getting the item, you get it first and pay later in predictable chunks.