Here’s Why Banks and Credit Card Companies Are Wary of Buy Now, Pay Later Loans
Buy now, pay later (BNPL) loans have exploded in popularity, letting shoppers split purchases into easy installments without interest on many plans. But as these services from companies like Affirm, Klarna, and Afterpay grab market share, traditional banks and credit card issuers are sounding alarms. They see BNPL not just as competition, but as a hidden risk that could destabilize lending and hurt consumers’ financial health. With FICO set to include BNPL data in credit scores starting this fall, the stakes are higher than ever.
The Hidden Debt Trap: BNPL Users Carry More Overall Debt
Banks worry that BNPL encourages overspending, leading to a buildup of unsecured debt that spills over into traditional products. Research from the Consumer Financial Protection Bureau (CFPB) shows BNPL borrowers often hold higher balances on credit cards, personal loans, and other debts compared to non-users. In fact, more than three-fifths of BNPL users juggle multiple loans at once, with one-third using several providers simultaneously.
This “shadow debt” flies under the radar because most BNPL loans aren’t reported to credit bureaus—until now. A Federal Reserve Bank of Boston study found BNPL users are more likely to revolve credit card balances, pay over-limit fees, and have low credit scores or past bankruptcies. Heavy users—about 20% who take out a loan monthly—amplify the problem, potentially defaulting on cards or loans when BNPL payments pile up.
Credit card companies, which thrive on interest from carried balances, fear BNPL siphons away revenue. Users often pay with cards linked to BNPL plans, but when installments default, it triggers overdraft fees or late charges on the card—costs that banks absorb while losing the interest opportunity.
Credit Scoring Chaos: Harder to Assess Risk Accurately
One of the biggest headaches for banks is the lack of transparency in BNPL lending. Traditional credit models rely on reported data to gauge risk, but BNPL’s off-the-books nature creates blind spots. As FICO rolls out its new scoring model in fall 2025, incorporating BNPL loans from major providers, banks anticipate turbulence. Late payments could ding scores for seven years, but inconsistent reporting from BNPL firms complicates accurate assessments.
Experts like credit restoration specialist Micah Smith warn this could spark a “looming credit catastrophe,” especially for young or low-income users who rely on BNPL as their entry to credit. Banks already flag heavy BNPL use as a red flag for mortgage or card approvals, viewing it as a sign of poor financial habits. Without full data, lenders can’t distinguish between responsible users and those layering debt, increasing default risks on their own products.
The Office of the Comptroller of the Currency (OCC) echoes this in its risk management guidance, noting BNPL’s automated approvals and third-party reliance heighten fraud and operational risks for banks eyeing partnerships.
Operational and Regulatory Headaches for Lenders
BNPL’s structure—short-term, no-credit-check loans—clashes with banks’ rigorous underwriting. Unlike credit cards, which build a repayment history, BNPL often skips hard inquiries, using alternative data that banks can’t easily verify. This makes integration tricky; a Synechron report highlights how traditional credit decisioning fails for BNPL’s flexible, low-value loans, forcing banks to rethink models or risk losses.
Regulatory scrutiny adds pressure. The CFPB’s 2023 monitoring orders on BNPL giants and its May 2024 rule classifying them as credit card providers mean banks must now treat BNPL like regulated debt. This could expose banks to compliance costs, especially for disputes or returns—areas where BNPL offers fewer protections than cards. Rising delinquencies, up amid high interest rates and student loan restarts, have even BNPL firms tightening criteria, signaling broader market strain.
Consumer Vulnerabilities: Overspending and Hidden Fees
From a bank’s perspective, BNPL preys on vulnerable groups, potentially creating a cycle of debt that boomerangs back. A LendingTree survey found 40% of users miss payments, leading to fees that hit linked bank accounts or cards. Young Americans, hit by inflation and resuming student loans, use BNPL for essentials like groceries—25% of users, up from 14% last year—raising overextension fears.
Financial influencer Haley Sacks calls BNPL “predatory,” urging credit cards’ 0% promo periods instead. Banks see this as eroding their role as “safer” lenders, with BNPL’s lack of interest masking true costs like NSF fees when auto-payments fail.
Expert Views: A ‘Debt Trap’ in Disguise
“The rise of BNPL is concerning because it targets those wary of high-interest cards, but without safeguards, it leads to fragile finances,” says a Richmond Fed economist. Reddit threads echo this, with users warning of fees when using cards to fund BNPL. NPR reports highlight how BNPL’s convenience masks risks like no dispute rights, unlike cards.
What This Means for Everyday Americans
For U.S. consumers, BNPL’s growth—15% of adults used it in 2024—means tighter credit access ahead. Banks’ wariness could raise rates on cards and loans as they adjust for “invisible” debt. Young and low-income shoppers, BNPL’s core users, face score drops that lock them out of homes or cars. Economically, it signals a shift: Traditional lending loses ground to fintech, but at the cost of stability in a high-rate environment.
The Road Ahead: Regulation and Smarter Borrowing
As FICO’s changes loom, banks push for uniform reporting to level the field. Experts advise treating BNPL like any debt: Budget strictly, avoid multiples, and opt for cards with protections for big buys. For now, BNPL’s allure persists, but banks’ caution underscores a simple truth: Easy payments today could mean tough credit tomorrow.