Americans’ use of buy now, pay later has expanded far beyond interest-free checkout plans, with Federal Reserve economists estimating $156.7 billion in U.S. credit issued during 2025. More than a third of that lending carried borrowing charges, complicating the promise of smaller, manageable payments.
The estimate, published June 5, covers six major providers and includes both pay-in-four plans and other short- and longer-term loans. It measures credit issued over a year, rather than the amount consumers owed at any single moment.
Pay-in-four accounted for $78.3 billion, nearly 80% above the $43.9 billion measured in 2023. Typically, shoppers pay one-quarter of the price at checkout and the remaining three installments every two weeks, completing repayment over six weeks.
The distinction between products matters. The researchers estimated that 63% of the broader market carried a zero annual percentage rate in 2025, down from 83% in 2020 and 2021. The remainder carried borrowing charges. Other installment products can be interest-free, so a monthly payment schedule alone does not reveal the cost.
The research cited Affirm products financing purchases up to $30,000, with annual percentage rates reaching 36% and repayment terms extending to five years. Those are product limits, not the terms every customer receives.
For households, the immediate attraction is cash flow: taking home a purchase without paying the entire price at once. The danger is that several modest installments can compete for the same paycheck.
Consider a hypothetical $200 grocery purchase split into four $50 payments. The first payment is due immediately, leaving $150 to repay. Three such purchases made together would leave $450 outstanding after the initial payments, with $150 due at each remaining installment date.
Splitting the bill changes its timing; it does not reduce the bill. And groceries can be consumed well before the final payment comes due.
Consumers are increasingly using installment products for everyday expenses, including groceries and transportation, according to recent Associated Press reporting. That shift makes repayment planning more consequential: a household may need to finance its next shopping trip while still paying for the previous one.
Late-payment evidence requires careful interpretation. A 2025 LendingTree survey cited by the Richmond Fed found that 41% of users had made at least one late payment during the preceding year, compared with 34% a year earlier. That measures users reporting a late payment, not the percentage of loans that ultimately went unpaid.
The consequences vary by provider. The Consumer Financial Protection Bureau warns that missed installments can bring late fees, restrictions on further purchases or collection activity. Automatic withdrawals can also trigger bank overdraft or insufficient-funds fees when an account lacks enough money.
Credit-score effects are less uniform than checkout warnings sometimes suggest. Some providers report loan activity, but whether that information affects a score depends on the credit bureau and scoring system. TransUnion currently says BNPL data furnished through its dedicated reporting process does not affect credit scores or credit decisions. Unpaid debt reported through collections can present a separate risk.
Retailers have a business incentive to offer installment financing. The Fed note cites research placing merchant fees at 5% to 8% of a sale, compared with 2% to 3% for credit cards. Those ranges are drawn from earlier research, rather than a fresh survey of every merchant’s current contract.
For a hypothetical $200 sale, those percentages imply $10 to $16 in BNPL fees, versus $4 to $6 for a credit-card transaction. The merchant’s calculation is whether additional sales justify the higher payment cost.
The Richmond Fed’s February assessment found no clear evidence that pay-in-four lending was creating material financial-system risks or causing higher overall unsecured debt. That narrower finding does not establish that every household can safely manage installment borrowing, or that longer-term interest-bearing products carry the same risks.
Before accepting a plan, shoppers need to compare the full repayment amount, fees and due dates with obligations they already have. For lenders and retailers, the unresolved question is whether growing transaction volume remains manageable for borrowers as installment payments become part of the everyday household budget.
JBizNews Desk | New York
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