U.S. consumers used buy now, pay later plans for over $160 billion in purchases last year

More than $160 billion was spent by Americans last year through buy now, pay later plans, according to research released by Federal Reserve economists.

Experts say the plans are being used more often for routine expenses such as groceries, bills, transportation and, in some cases, rent.

"It has been very hard out there for a lot of people," said Sara Rathner, NerdWallet's credit card expert. "It's a tough job market, and it's a rough economy, and the cost of the things that we buy every day has been going up, in some cases more than people's incomes."

Pay-in-four plans, which typically let shoppers split purchases into four installments over six weeks, made up about half of the buy now, pay later total last year, the study found. Usage of those plans has risen nearly 80% since 2023.

The remaining volume came from shorter- and longer-term loans.

How consumers are using buy now pay later

Elizabeth Brown first turned to buy now, pay later when she had just started living on her own and her salary made even basic expenses difficult to cover. She used it to buy groceries and then paid them off after getting paid. Six years later, she says not much has changed.

"I used buy now, pay later so I can have the furniture I need. I have groceries in my fridge because of it. I don't necessarily feel shameful for using it because at the end it's very beneficial to me at this point of my life," said Brown, 26, of Columbia, South Carolina, who works as a clinical service member at an optical store.

Buy now, pay later products have also expanded. One version, rent now, pay later, divides rent into several payments.

"It isn't really just a convenience element anymore; it really is becoming a cash flow challenge," said Mark Elliott, chief customer officer at Happen Bank, a financial services company formerly known as Lending Club.

Jordan Williams, 28, first used buy now, pay later to buy concert tickets to see Hozier. Later, after her daughter was born and money became tight, she began relying on it for some grocery purchases.

"There's just not a lot of resources, and that makes me angry because this shouldn't be something I have to do," said Williams, a lecturer and content creator from Greensboro, North Carolina. "We should be able to just afford groceries. I feel angry and then I feel embarrassed."

Williams said she long felt ashamed about using buy now, pay later for necessities, but now feels less isolated after speaking with others who also carry debt.

If you plan to use buy now, pay later plans, experts offer several tips:

Read the fine print

The best-known buy now, pay later product is pay-in-four, in which borrowers repay in four installments, one every two weeks, usually at a 0% annual percentage rate, or APR. But not all of these loans have the same terms. Before agreeing to a purchase, Ed deHaan, a professor at the Stanford Graduate School of Business, says consumers should read the contract carefully.

"So-called buy now, pay later products are popping up that are not good deals at all," deHaan said. "Some of them charge hefty fees, both upfront and if you miss a payment."

In general, missing a payment can lead to fees, interest or being blocked from using the service again.

Know how it affects your credit score

Buy now, pay later loans did not used to affect credit scores, but that has changed. Providers now report lending activity to one of the three major credit bureaus: Equifax, Experian and TransUnion.

"Entering into a buy now, pay later plan for now isn't going to affect your credit in any way, but missing a payment can, so that's where you really want to be careful," Rathner said.

Credit reporting varies by company and by policy. For instance, Affirm and Klarna report to Experian and TransUnion, while Afterpay does not report to any credit bureau.

Only borrow what you can repay

Before using buy now, pay later, deHaan recommends stopping to ask whether the amount is something you can realistically pay back.

"The general advice for credit is that it's very easy to spend and hard to pay off," deHaan said. "And most of us, many of us, are not good at making good predictions about what we will be able to pay in the future."

Brown said she limits herself to $100 a month across all payments and avoids every-two-week plans, choosing monthly payment options instead.

Avoid stacking plans

Like credit cards, buy now, pay later plans can be used more than once, but taking on too many can quickly become overwhelming. Carla Sanchez-Adams, a senior attorney at the National Consumer Law Center, said shoppers should avoid piling up these loans if they want to keep debt from snowballing.

"Avoid multiple purchases because then it gets really hard to track, especially if they're with different companies," Sanchez-Adams said.

If multiple loans are unavoidable, she added, consumers should keep close track of payment amounts and due dates to avoid late fees.

Seek out additional resources

Rathner said it can help to look into food banks, SNAP or hardship assistance programs in your area.

"If you are stretched thin for affording food and going into debt to do so, it could be time to seek out additional help," she said. "So this is hopefully less of a struggle for you and your family while you're going through this difficult time."

Seek help from a nonprofit credit counseling agency

If you have too many buy now, pay later loans and perhaps credit card debt as well, it may be time to turn to a credit counseling agency. Two well-known ways to find nonprofit credit counseling help are the National Foundation for Credit Counseling and the Financial Counseling Association of America, both of which can connect people with certified agencies and counselors.

"You have financial stress, you have work stress, you have family stress," Rathner said. "Get help with the financial stress because that can help you feel more in control of this area of your life. And it can help take one step at a time toward paying down your debts and feeling more in control."