Consumer Credit Risks Rise As More Americans Default on Buy Now, Pay Later Programs

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Consumer credit risks are piling up as more Americans struggle to meet the terms of their buy now, pay later (BNPL) loans. Swedish fintech firm Klarna, one of the largest BNPL providers in the U.S., reported a 17% jump in credit losses in the first quarter of 2025 compared to the same period last year. Klarna’s losses rose to $136 million as more users missed payments and defaulted on short-term installment plans.

The report highlights growing strain among U.S. consumers who are relying more heavily on deferred payment options to manage everyday expenses. A LendingTree survey found that 41% of BNPL users reported late payments in the past year, up from 34% in 2024. More than one-quarter are now using these loans to buy groceries—a sharp increase from 14% just one year ago.

Buy Now, Pay Later: A Growing Segment With Weak Repayment Behavior

Despite its early branding as a safer alternative to credit cards, BNPL now accounts for billions in merchandise spending. Klarna’s customer base in the U.S. has grown to more than 100 million users. Industry leaders like Affirm, Afterpay, PayPal, and Zip processed over 277 million BNPL loans in 2022 alone, according to the Consumer Financial Protection Bureau.

Yet the core issue remains: many consumers are not paying later. Klarna said the share of global loans that went unpaid in Q1 rose slightly from 0.51% to 0.54%. While still small as a percentage of total lending, the absolute dollar increase underscores the fragility of U.S. consumer credit, especially at the lower end of the income spectrum.

Federal Reserve studies indicate that BNPL users skew younger and are more likely to be financially vulnerable. Black and Hispanic women were identified as higher-than-average users of BNPL plans. According to researchers, many consumers overextend themselves by using BNPL options, leading to overdraft fees, rising interest payments, and mounting debt stress.

Regulatory Retreat Leaves Consumers With Fewer Protections

Klarna’s financial disclosures arrive as the Trump administration scales back oversight of the BNPL sector. A Biden-era regulation that classified BNPL loans like credit cards under the Truth In Lending Act is no longer being enforced. That rule required clearer disclosures, refund procedures, and safeguards against double penalties for late payments.

Consumer advocates argue that rolling back these rules removes essential protections for millions of Americans navigating a new credit landscape. “By taking a head-in-the-sand approach to the new universe of fintech loans, the new CFPB is once again favoring Big Tech at the expense of everyday people,” said Adam Rust of the Consumer Federation of America.

The lack of regulation also limits transparency. BNPL loans are not consistently reported to credit bureaus, making it harder to assess a borrower’s full risk profile. Investors and lenders have less visibility into how much debt a consumer is actually carrying—a dynamic that creates blind spots across the broader consumer credit ecosystem.

Investors Eye Credit Quality as Economic Headwinds Mount

From an investment standpoint, Klarna’s postponement of its $15 billion IPO reflects uncertainty about the durability of its lending model. Analysts are beginning to question whether rising consumer credit losses could trigger a broader reevaluation of fintech valuations, especially among firms heavily exposed to short-term lending.

The company’s retreat from an AI-heavy service model also signals operational pressures. After laying off 22% of its staff between 2023 and 2024, Klarna now says it is hiring gig workers again to meet customer service demands. This pivot suggests that automation hasn’t been able to scale effectively in an industry where consumer financial behavior is unpredictable.

As the U.S. economy continues to wrestle with trade disruptions, inflation, and persistent cost-of-living increases, BNPL may serve as a canary in the coal mine for broader credit market health. Investors would be wise to monitor not just the headline growth of BNPL adoption, but the hidden liabilities accumulating beneath it.

Which aspect of the Buy Now, Pay Later boom poses the biggest risk to consumer credit? Tell us what you think.

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