By Angel Au-Yeung

Ashlyn Dager was 18 when she took out her first "buy now, pay later" loan. It had a 30% interest rate and almost no bearing on her credit score.

Struggling with pain from a genetic disorder, she financed a $1,100 full-size mattress with Affirm, a financial-technology company that is an increasingly popular choice for some younger Americans who traditionally have less access to credit cards.

Soon, she turned to Affirm for groceries, haircuts and eyelash extensions. Her debt ballooned to nearly $4,600, which required a $771 monthly payment.

"Initially it starts off with necessities," said Dager, 22, who recently took out a personal loan from her credit union, with a 14% interest rate, to pay off her Affirm balance. "To me, it was just $20 a month here and there, not $1,000 in debt. But it all adds up."

The use of such loans, which allow consumers to spread the cost of purchases -- from large-ticket items to services as small as food delivery, accelerated in the past year among young Americans, according to a June report from the Bank of America Institute.

Tens of millions of consumers use buy now, pay later loans. Young Americans have turned to them as it has become harder to be approved for credit cards in today's economic environment, said Michele Raneri, vice president and head of U.S. research at TransUnion.

They also face a tougher employment picture, stubbornly high prices on everyday items and student-loan payments, leading them to turn to BNPL. For many, the loans have also become a reliable source of fun money.

The ease of approvals, which come in minutes after credit checks designed not to affect a borrower's credit score, have appealed to borrowers and helped fuel growth. The availability of the new loan opportunity has led shoppers to buy things they might have otherwise avoided, according to a recent study from the National Bureau of Economic Research.

Yadira Lara, 28, started using buy now, pay later loans after seeing the option on the checkout page of online clothing websites. She soon started financing larger items including car tires, a dining table, concert tickets and a washer-dryer set.

More recently, she financed $900 of Botox and filler injections with the fintech company Klarna and said splitting large purchases into small payments over time gives her more cash on hand. "Before you come at me with, 'Who has that kind of money?' -- Klarna does," Lara said in a video she posted on TikTok. "You use it for Shein, Amazon, Temu...use it for your face, 'kay? Just make payments on it."

Companies like Affirm and Klarna can extend loans as large as $20,000, offering annual interest rates ranging from zero to 36%. The rates depend on the borrower's standing, payment timeline and the item being purchased. Retailers can also pay fees to Affirm to offer better terms for shoppers, such as zero interest, at checkouts.

These loans haven't affected credit scores for the most part, but that might soon change. In June, Fair Isaac, the company behind the most widely used U.S. credit score, said it would roll out a new model that factors the loans into its scores. Some banks like JPMorgan Chase and Capital One Financial prevent their credit cards from being used for purchases that involve such loans.

Buy now, pay later loans might seem more attractive to an age group that already feels economic pressure, said David Tinsley, senior economist at the Bank of America Institute.

"The fact that large transactions are broken up makes it slightly more palatable, but it's possible it also incentivizes people to spend more than they would have," said Tinsley. "There's a risk that some people who use it might get into financial stress."

Klarna, a Swedish BNPL provider, reported a 17% year-over-year increase in customer credit losses in the first quarter of this year, hitting $136 million. The company's credit-loss rate, or the lender's credit losses as a share of the total loans it had underwritten, rose to 0.54%, up slightly from 0.51% a year earlier, according to a company spokeswoman.

Affirm, based in San Francisco, said 3% of its Gen Z borrowers aren't paying the company back in full, across all its different loan plans.

Andrea Bernal, a recent college graduate who works as a legislative aide for the city of Berkeley, Calif., is an enthusiastic user of buy now, pay later loans. She advocates on social media for others to use them and mostly uses them for concert and music-festival tickets, she said.

"I was able to afford four or five Harry Styles concert tickets by using buy now, pay later," said Bernal, 23. For those purchases, she used Klarna.

Bernal has been financially independent since she graduated from high school. She said she budgets carefully for groceries, rent, gas and public transportation. Still, she feels the impact of rising prices, and sometimes forgoes trips to the supermarket.

But concerts are a discretionary expense she won't give up. "I should be allowed to go to music festivals whether or not I can drop $1,000 on one day," said Bernal, who estimates she has been to 20 to 25 concerts and multiday music festivals in the past 12 months.

Write to Angel Au-Yeung at angel.au-yeung@wsj.com

(END) Dow Jones Newswires

August 02, 2025 05:30 ET (09:30 GMT)

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