What Is Buy Now, Pay Later? A Complete 2025 Guide to BNPL Risks and Benefits

Editor's note: This post was originally published August 30, 2024, and has been updated for accuracy, comprehensiveness and freshness on September 16, 2025.

Educational Overview: This guide provides general information about Buy Now, Pay Later services based on LegalShield research. Individual experiences may vary, and readers should consult qualified professionals for personal financial or legal advice.

Have you noticed "Buy Now, Pay Later" options appearing at many retail locations? From online checkout pages to in-store payment terminals, BNPL has become increasingly common. Understanding how these services work can help consumers make informed decisions about whether or not to use them.

Recent LegalShield research involving over 2,000 Americans found that approximately 76% have used BNPL services, with about 49% reporting they have missed at least one payment. These findings suggest the importance of understanding BNPL terms and conditions before use.

What Is Buy Now, Pay Later?

Buy Now, Pay Later (BNPL) refers to short-term financing options that allow consumers to split purchases into smaller, scheduled payments over time. Rather than paying the full amount upfront, consumers typically receive their item immediately and complete payment through installments over several weeks or months.

Example of How BNPL May Work

Consider a $200 grocery purchase using BNPL:

• The consumer might pay $50 at checkout
• Three additional $50 payments could be scheduled every two weeks
• Total payment period: approximately 6 weeks

BNPL services typically differ from traditional credit cards in their application processes and terms, often requiring less extensive credit verification for approval.

Development of BNPL Services

While installment purchasing concepts have existed since the 19th century, modern BNPL services gained prominence around 2019. The concept has experienced significant growth in recent years as consumers sought flexible payment alternatives.

How BNPL Works

Typical Application Process

BNPL applications generally involve these steps:

1. At checkout, consumers may select BNPL as a payment option
2. Application completion typically requires basic information: name, address, contact details, and sometimes Social Security number
3. Payment method provision: credit card or bank account information for scheduled withdrawals
4. Approval process: Many companies perform "soft" credit inquiries
5. Transaction completion: Upon approval, consumers receive their purchase and begin the payment schedule

Common Payment Structure Types

Pay-in-Four Model (Frequently Offered):

• Four equal payments
• Bi-weekly payment intervals
• First payment typically due at checkout
• Subsequent payments are automatically processed

Extended Payment Plans:

• Payment periods ranging from 3 to 60 months
• May include interest charges
• Often involves additional credit verification
• Generally used for larger purchase amounts

BNPL Service Providers

Dedicated BNPL Companies:

• Klarna (reports partnership with 450,000+ merchants)
• Affirm (indicates 358,000+ business partnerships)
• Afterpay (claims global presence with 100,000+ merchants)

Retailer-Integrated Services:

• Various major retailers offer proprietary BNPL options
• Technology companies provide integrated payment solutions
• E-commerce platforms incorporate BNPL services

Note: Partnership numbers and merchant relationships may change. Consumers should verify current terms and availability directly with service providers.

BNPL Usage Statistics 2025

LegalShield's August 2025 research study provides insights into BNPL usage patterns among American consumers:

Usage Data

• Approximately 76% of survey respondents reported using BNPL services
• Industry estimates suggest 91.5 million Americans may use BNPL in 2025
• About 67% of respondents indicated managing multiple BNPL arrangements
• Approximately 62% of frequent users reported managing 5+ active loans

Usage by Age Group

Survey responses varied by generation:

Gen Z (Age 18-27): 72% Usage Rate

• Many view BNPL as an introductory credit experience
• 87% reported not reading the complete terms and conditions
• 76% indicated limited confidence in dispute processes

Millennials (Age 28-43): 82% Usage Rate

• 71% reported managing multiple loans simultaneously
• 50% indicated missing at least one payment

Gen X (Age 44-59): 84% Usage Rate

• 72% reported managing 5+ active loans
• 62% indicated missing payments

Baby Boomers (Age 60+): 51% Usage Rate

• Lower overall usage rates
• 63% reported uncertainty about dispute procedures

Note: Survey results reflect respondent self-reporting and may not represent all consumer experiences.

Purchase Categories

Survey respondents reported using BNPL for various purchase types:

Essential Expenses:

• 47% indicated using BNPL for groceries
• 35% reported using it for medical expenses
• Various household necessities

Discretionary Purchases:

• 54% indicated purchasing luxury items (designer goods, jewelry)
• Electronics and technology products
• Fashion and accessories

This data suggests BNPL usage has expanded beyond discretionary spending to include essential expenses for many consumers.

Potential Costs and Considerations

Fee Structures and Interest Rates

Short-Term Plans:

• Many pay-in-four plans advertise 0% interest for on-time payments
• Late fees may range from approximately $8-$35 per missed payment

Extended Payment Plans:

• Interest rates may range from 0% to 36% annually
• Additional fees may apply
• Terms vary significantly between providers

Payment Completion Rates

Survey data indicates payment completion challenges:

• Approximately 49% of respondents reported missing at least one payment
• Multiple missed payments may result in accumulating fees
• Late fees may compound across multiple active loans

Multiple Loan Management

67% of survey respondents indicated managing multiple BNPL arrangements simultaneously, which may create:

• Overlapping payment schedules
• Budget tracking complexity
• Increased potential for missed payments
• Financial management challenges

"We regularly speak with consumers who are managing payments from multiple companies simultaneously,"

notes Rebecca A. Carter, LegalShield provider attorney with Friedman, Framme & Thrush, PA.

Common Consumer Concerns

Reported Dispute Issues

LegalShield's research found that approximately 45% of BNPL users reported experiencing disputes or concerns, including:

Billing-Related Issues (62% of those reporting disputes):

• Incorrect charge amounts
• Duplicate billing instances
• Charges continuing after item returns
• Unexpected payment processing

Return Process Concerns (60% reporting payment obligations after returns):

• Complex return procedures
• Delayed refund processing
• Partial refunds on interest-bearing arrangements
• Communication challenges between merchants and BNPL providers

Consumer Response Patterns

Survey data suggests varied consumer responses to disputes:

• 36% of respondents indicated accepting charges rather than disputing
• 28% reported being unaware of dispute rights
• Many indicated limited confidence in dispute resolution processes

Terms and Conditions Considerations

Common agreement elements that may require attention include:

• Data collection and usage permissions
• Cancellation and modification policies
• Automatic payment authorizations
• Dispute resolution procedures
• Liability limitations for merchant-related issues

"Many consumers may not fully understand their rights when issues arise, which highlights the importance of professional guidance,"

explains Carter.

Understanding Credit Implications

Upcoming Changes

FICO has announced plans to incorporate BNPL data into credit score calculations beginning fall 2025. However:

• Approximately 38% of survey respondents were unaware of this planned change
• Implementation details continue to develop
• Different providers may have varying reporting practices

Current Reporting Practices

Limited Reporting Currently:

• Most BNPL companies do not currently report to major credit bureaus
• Some providers have indicated they may not initially participate in credit reporting
• Affirm currently reports certain loan data to major credit bureaus

Potential Future Credit Considerations

When FICO integration occurs:

• BNPL payment history may influence credit scores
• Multiple active arrangements may be considered in credit evaluations
• Payment patterns may become part of permanent credit records

Economic Context

These changes occur as U.S. household debt delinquency reached 4.4% in Q2 2025 according to Federal Reserve data – representing the highest level since early 2020.

Considerations for BNPL Usage

Situations Where BNPL Might Be Suitable

Consumers may find BNPL appropriate when they:

• Need to manage one large, necessary purchase over time
• Have confidence in their ability to make scheduled payments
• Prefer to maintain only one BNPL arrangement at a time
• Have reviewed and understand all terms and conditions
• Maintain stable income to support payment obligations

Situations Where BNPL May Not Be Suitable

Consumers might consider avoiding BNPL when they:

• Currently experience challenges with monthly financial obligations
• Face income uncertainty or employment instability
• Are considering purchases that aren't essential
• Already manage multiple BNPL arrangements
• Haven't fully reviewed the complete terms and conditions

Best Practices for BNPL Consideration

Before Application:

• Review all terms and conditions thoroughly
• Calculate total costs, including potential fees
• Understand payment schedules and amounts
• Assess personal need for the purchase
• Evaluate budget capacity for payment obligations

After Approval:

• Maintain payment reminders through preferred methods
• Track all BNPL arrangements systematically
• Monitor credit information regularly
• Keep detailed records of all communications
• Budget specifically for BNPL payment obligations

Agreement Elements to Review

When reviewing BNPL agreements, consumers may want to pay attention to:

• Fee structures and potential charges
• Return and refund policies
• Data collection and usage practices
• Interest rates for extended payment plans
• Dispute resolution procedures
• Modification and cancellation policies

"Payment arrangements today involve more complex terms than traditional layaway systems,"

advises Carter.

"Understanding these terms completely before agreeing can help consumers make informed decisions."

When Issues May Arise

Recommended Response Steps

If consumers encounter BNPL concerns, they might consider:

1. Contacting the BNPL provider promptly

• Clearly describe the specific issue
• Request written confirmation of any agreements
• Document all communication attempts

2. Maintaining comprehensive records

• Save all electronic communications
• Screenshot relevant statements and messages
• Retain receipts and return documentation

3. Understanding consumer rights

• Research applicable consumer protection laws
• Review return and refund policies
• Understand dispute resolution options

4. Addressing issues promptly

• Early communication may prevent escalation
• Delayed responses may limit available options
• Professional guidance may be beneficial for complex situations

5. Considering professional assistance for complex matters

• Legal consultation for persistent issues
• Professional review of complex agreements
• Guidance on formal dispute procedures

How LegalShield May Assist with BNPL Concerns

LegalShield provides members with access to legal guidance for various consumer financial matters, potentially including BNPL-related questions. Provider attorneys may assist members with:

Agreement Review:

• Reviewing BNPL terms before acceptance
• Explaining agreement provisions
• Discussing rights and obligations

Issue Resolution Support:

• Guidance on communication with BNPL companies
• Assistance with formal correspondence
• Advice on dispute resolution options

Consumer Rights Education:

• Information about applicable consumer protection laws
• Guidance on agreement modification procedures
• Education about proper dispute processes

"When consumers face billing discrepancies or return-related payment issues, professional guidance can help them understand their options,"

notes Warren Schlichting, CEO of LegalShield.

Summary: Understanding BNPL Services

Buy Now, Pay Later services offer payment flexibility that many consumers find helpful. However, LegalShield research indicates that consumers may encounter various challenges, with survey respondents reporting payment difficulties and disputes.

Key Research Findings:

• BNPL usage appears widespread, with 76% of survey respondents reporting use
• Payment challenges are common, with 49% indicating missed payments
• Disputes may occur, with 45% of users reporting various issues
• Multiple loan management presents challenges for 67% of users
• Credit reporting changes are planned for fall 2025

General Recommendations:

• Use BNPL services thoughtfully and primarily for essential needs
• Consider limiting to one arrangement at a time when possible
• Review all agreement terms completely before acceptance
• Budget specifically for BNPL payment obligations
• Understand consumer rights before issues arise
• Seek appropriate guidance when disputes occur

Financial Planning Perspective

When feasible, paying for purchases in full at the time of purchase remains a straightforward approach that avoids payment scheduling complexities. BNPL represents a form of financial obligation that requires careful consideration.

Access to Legal Guidance

Consumers considering BNPL services or experiencing related concerns may benefit from professional guidance. Complex financial agreements can involve various legal considerations that may not be immediately apparent.

Learn more about LegalShield and how membership provides access to legal guidance for consumer financial questions and other legal matters.

Research Methodology and Information Sources

The LegalShield study was conducted in August 2025, surveying 2,018 U.S. adults aged 18-80. The sample was balanced by age and other demographic variables according to U.S. Census data. Additional information sourced from CNBC Select reports, FICO announcements, and Federal Reserve economic data. All statistics are based on survey respondent self-reporting and may not reflect all consumer experiences.