Americans are using buy now, pay later more than ever. Here's what to know if you're one of them

NEW YORK (AP) — Americans spent more than $160 billion last year using buy now, pay later plans, according to research published by Federal Reserve economists.

Experts say they’re increasingly seeing people use the plans for everyday expenses like groceries, bills, transportation and, sometimes rent .

“It has been very hard out there for a lot of people," said Sara Rathner, NerdWallet’s credit card expert. “It’s a tough job market, and it’s a rough economy, and the cost of the things that we buy every day has been going up, in some cases more than people’s incomes.”

Pay-in-four plans, which generally allow consumers to pay for purchases in four installments over six weeks, accounted for about half of the $160 billion in buy now, pay later spending last year, according to the study. Use of those plans has increased nearly 80% since 2023.

The rest of the plans were either longer- or shorter-term loans.

When Elizabeth Brown first used buy now, pay later, she had just started living by herself and was earning a salary that made it hard to afford basic expenses. She would buy groceries and, once she got her paycheck, pay for them through buy now, pay later. Six years later, things haven’t changed much.

“I used buy now, pay later so I can have the furniture I need. I have groceries in my fridge because of it. I don’t necessarily feel shameful for using it because at the end it’s very beneficial to me at this point of my life,” said Brown, 26, of Columbia, South Carolina, who works as a clinical service member at an optical store.

Buy now, pay later products have evolved. Rent now, pay later services are one form, which break rent into multiple payments.

“It isn’t really just a convenience element anymore; it really is becoming a cash flow challenge,” said Mark Elliott, chief customer officer at Happen Bank, a financial services company formerly known as Lending Club.

Jordan Williams, 28, first used buy now, pay later to get concert tickets to Hozier. Then, when she experienced financial hardship after her daughter was born, she started leaning on it to pay for some of her groceries.

“There’s just not a lot of resources, and that makes me angry because this shouldn’t be something I have to do," said Williams, a lecturer and content creator from Greensboro, North Carolina. "We should be able to just afford groceries. I feel angry and then I feel embarrassed.”

For a long time, Williams felt ashamed about having to use buy now, pay later for basic expenses. She now feels less alone after talking with other people who also have debt.

If you're going to use buy now, pay later plans, here are some expert recommendations:

The most well-known buy now, pay later product is pay-in-four, where you can pay back what you owe in four payments, one every two weeks, with a 0% annual percentage rate, or APR. However, not every buy now, pay later loan has the same terms. Before you commit to buying something using buy now, pay later, Ed deHaan, a professor at the Stanford Graduate School of Business, recommends that you read your contract carefully.

“So-called buy now, pay later products are popping up that are not good deals at all," deHaan said. "Some of them charge hefty fees, both upfront and if you miss a payment."

In general, if you miss a buy now, pay later payment, you can face fees, interest or the possibility of being banned from using the services in the future.

In the past, buy now, pay later loans didn’t impact your credit score, but that has changed. Buy now, pay later agencies now report credit lending activity to one of the three major credit bureaus, Equifax, Experian and TransUnion.

“Entering into a buy now, pay later plan for now isn’t going to affect your credit in any way, but missing a payment can, so that’s where you really want to be careful,” Rathner said.

Credit reporting depends on the company and its policies. For example, both Affirm and Klarna report to Experian and TransUnion. Afterpay does not report to any credit bureau.

Before purchasing something with buy now, pay later, deHaan recommends pausing to consider whether it’s an amount you can pay back.

“The general advice for credit is that it's very easy to spend and hard to pay off," deHaan said. “And most of us, many of us, are not good at making good predictions about what we will be able to pay in the future.”

When using buy now, pay later, Brown set herself a limit of $100 a month across payments, and she avoids signing up for payments every two weeks and instead chooses the monthly payment options.

As with credit cards, you can sign up for multiple buy now, pay later plans. These loans can quickly balloon until they become unmanageable. If you don’t want to risk snowballing into debt, avoid stacking buy-now, pay later loans, said Carla Sanchez-Adams, senior attorney at the National Consumer Law Center.

“Avoid multiple purchases because then it gets really hard to track, especially if they’re with different companies,” Sanchez-Adams said.

If you have to utilize multiple loans, make sure you keep track of the payment amounts and dates so you avoid late fees, she added.

Looking into additional resources such as food banks, SNAP or hardship help programs in your area can be helpful, Rathner said.

“If you are stretched thin for affording food and going into debt to do so, it could be time to seek out additional help," she said. “So this is hopefully less of a struggle for you and your family while you’re going through this difficult time.”

If you've reached a point where you have too many buy now, pay later loans and maybe some credit card debt too, it might be time to seek help from a credit counseling agency. Two well-known resources for finding nonprofit credit counseling agencies are the National Foundation for Credit Counseling and the Financial Counseling Association of America. Both can help you connect with certified agencies and counselors.

“You have financial stress, you have work stress, you have family stress," Rathner said. “Get help with the financial stress because that can help you feel more in control of this area of your life. And it can help take one step at a time toward paying down your debts and feeling more in control.”

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