Why are more shoppers struggling to repay ‘buy now, pay later’ loans?

An increasing number of U.S. consumers are struggling to repay "buy now, pay later" (BNPL) loans, with companies like Klarna reporting a 17% rise in credit losses in Q1 2025, totaling $136 million. This trend is attributed to growing financial pressures, including record-high consumer debt and the resumption of federal student loan collections. BNPL services, often marketed as interest-free and easy to obtain, have become particularly popular among younger consumers and disproportionately involve Black and Hispanic women, raising concerns about financial overextension among vulnerable populations.

Despite the surge in BNPL usage, with 277.3 million loans issued in 2022, regulatory oversight is loosening. The Trump administration has chosen not to enforce a Biden-era rule that would have introduced consumer protections under the Truth in Lending Act. This deregulatory move has drawn criticism from consumer advocates, who argue that the lack of proper oversight increases risks for borrowers, especially as economic pressures mount.

The combination of rising defaults and reduced regulatory protections has sparked debate over the sustainability of the BNPL model. While companies like Klarna assert that the increase in credit losses is proportional to loan growth and does not indicate a weakened U.S. consumer, experts warn that the current trajectory could lead to greater financial instability for consumers who are already vulnerable.

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Source: AP

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