The Future of Credit or a Debit Trap in Disguise?

If you have bought anything online in the past two years, chances are you have seen the option “Buy Now, Pay Later.” A couple small payments, zero interest, instant approval. It sounds perfect, right?

Platforms like Klarna, Afterpay, and Affirm have turned this option into one of the fastest growing trends in consumer finance. And for many people, especially younger shoppers, BNPL seems like a smarter alternative to credit cards. But as it grows, so do the questions. Are we witnessing the future of flexible finance? Or just the next financial bubble forming quietly in our shopping carts?

Why BNPL Took Off

BNPL’s rise isn’t random. After the COVID19 pandemic, people were more cautious with spending but still wanted to shop. At the same time, inflation was pushing up prices, and wages weren’t keeping up. That’s where BNPL came in, offering a way to delay payment without interest or fees. 

The Wall Street Journal reports that tens of millions of Gen Z shoppers are now opting for the “buy now, pay later” option over traditional credit cards to fund their spending. Retailers love it too. It boosts sales and it brings access to new customers as paying in installments allows people to have more financial flexibility. It is reported that online retailers strategically use BNPL as a tool to attract non-loyal customers and potentially encourage impulse purchases.

The Psychology: Why It Works So Well

BNPL changes how people think about spending. Instead of seeing a $200 price tag, they see ‘$50 today’ or even ‘$0 today’ for smaller items. This approach makes the cost feel more accessible which makes people less likely to hesitate. Behavioral economists call BNPL a way of “reducing the pain of paying.” Thus, in an online shopping environment, BNPL encourages customers to adopt an “I want it now” mindset, highlighting the tradeoff between immediate satisfaction and future cost. However, this can lead to disconnecting people from the actual cost, leading many BNPL users to overspend or make purchases they didn’t intend to.

Most BNPL loans are small, ranging between $50 to $1,000, averaging just $135. Because of this, BNPL tends to be used more for low-cost items rather than expensive ones. This works alongside the “lipstick effect”, where consumers, especially during financial stress, cut back on big purchases but still treat themselves to smaller luxuries. BNPL can increase this effect, encouraging frequent, low cost purchases that quickly add up.

The Risks Are Adding Up

The issue isn’t just overspending, it’s how easy it is to lose track of the debt. Most BNPL platforms don’t do strict credit checks. They also don’t always report a user’s borrowing to credit agencies. That means people could be taking out multiple BNPL loans at the same time, on different platforms, and no one might have the full picture of their debt. Companies like Klarna have already seen a rise in missed payments. In fact, its net loss for the first three months of 2025 totaled $99 million which is much worse than the previous year. This suggests the current BNPL model might not be as stable as it appears. For people using BNPL to cover essentials, not just clothes or electronics, the risk is even greater. A short-term solution can easily turn into long-term debt.

So, Who’s Watching?

Governments are starting to introduce rules to make “Buy Now, Pay Later” safer for consumers. In the UK, new laws will soon require BNPL companies to check if people can afford the payments before approving them. Shoppers will also have the right to complain to an official service if something goes wrong, and they’ll get the same protections as credit card users. In the U.S., similar rules are being considered, but they haven’t been fully put in place yet. These changes are meant to make BNPL clearer and more secure for everyone.

What’s Next?

BNPL has real potential. It can be a smarter, fairer way to borrow, only if used carefully. But for now, it’s operating in a grey area. Too easy to access, too hard to track, and too tempting to ignore. So, is BNPL the future? Maybe. But it depends on how we manage it. Because if we don’t take a closer look now, we could be setting ourselves up for another financial mess.

Joana Janevska

Sources:
Au-Yeung, A. (2025, August 2). Here a generation is turning to ‘buy now, pay later’ for Botox and concert tickets. The Wall Street Journal. 
Browne, R. (2025, May 19). Klarna doubles losses in first quarter as IPO remains on hold. CNBC.
Cheng, A. (2020, December 16). Why retailers are embracing buy now, pay later services this holiday season. Forbes.
Consumer Financial Protection Bureau (CFPB). (2022, September). Buy Now, Pay Later: Market trends and consumer impacts report.
Financial Conduct Authority (2025, July 18). Regulating Buy Now, Pay Later.
Kumar, A., Salo, J., & Bezawada, R. (2024). The effects of buy now, pay later (BNPL) on customers’ online purchase behavior. Journal of Retailing, 100(4), 602-617
The Guardian. (2008, December 22). Into the red: ‘lipstick effect’ reveals the true face of the recession.
UK Government. (2025). New rules to end Buy Now, Pay Later wild west, protect millions of shoppers and drive growth.