The BNPL Reckoning: Why Buy Now, Pay Later Debt Could Spark the Next Consumer Credit Crisis

For millions of Americans, the holiday shopping season was made possible by a simple promise: pay later. Buy Now, Pay Later (BNPL) services—Klarna, Affirm, Afterpay, and PayPal's Pay in 4—processed record transaction volumes in November and December, allowing consumers to spread purchases across four or more installments with no interest.

Now those payments are coming due. And as regulators, economists, and consumer advocates scrutinize the data, a troubling picture is emerging. The BNPL boom may have created a reservoir of "phantom debt" that could trigger the next consumer credit crisis.

The Hidden Scale of BNPL

Unlike credit cards, mortgages, or auto loans, most BNPL obligations don't appear on traditional credit reports. This invisible nature makes the true scale of BNPL borrowing difficult to quantify—and easy for both consumers and lenders to underestimate.

What data does exist is concerning:

• Market size: Global BNPL volume reached approximately $560 billion in 2025, up from $490 billion in 2024—growth of 13.7%.
• Usage rate: More than one in five U.S. consumers with a credit record used BNPL in 2025, according to CFPB data.
• Multiple loans: More than 60% of BNPL borrowers held multiple simultaneous loans at some point during the year, with one-third having loans from multiple providers.
• Delinquency: Between 34% and 41% of BNPL users have missed at least one payment, depending on the study.

The "Phantom Debt" Problem

Because most BNPL loans aren't reported to credit bureaus, they constitute what regulators have termed "phantom debt"—obligations invisible to traditional underwriting systems. A consumer with multiple BNPL loans may appear creditworthy based on their FICO score while actually being stretched to the breaking point.

The Consumer Financial Protection Bureau has flagged this as a systemic concern:

"Because most BNPL loans are not reported, they can become so-called 'phantom debt' that introduces systemic risk," the agency warned in a recent report. "The impact of this risk depends on the market size of BNPL, its delinquency rates and the spillover effects onto other consumer credit products."

The concern isn't just theoretical. CFPB research found that BNPL users tend to have higher overall debt burdens, lower credit scores, and are more likely to use high-cost credit products like payday loans. They're not using BNPL as a convenience—they're using it as a lifeline.

Who's Using BNPL—And Why

The demographic profile of heavy BNPL users illuminates the vulnerability:

• Age: Users skew young, with borrowers ages 18-24 having BNPL purchases account for 28% of their total unsecured debt.
• Credit profile: Most users have subprime or deep subprime credit scores, limiting their access to traditional credit products.
• Income: Lower-income households are significantly more likely to use BNPL than higher-income households.

In other words, BNPL has become the credit product of last resort for consumers who have exhausted or been denied traditional credit—exactly the population most vulnerable to financial distress.

The Holiday Hangover

The timing of BNPL's growth creates an immediate concern. Holiday spending powered by BNPL generates payments due in January and February—precisely when consumers are also facing heating bills, credit card statements from December purchases, and the financial hangover of the holiday season.

Industry observers expect delinquency rates to spike in Q1 2026. The question is whether those delinquencies remain contained within BNPL or spill over to other credit products as stretched consumers prioritize which bills to pay.

Regulation Finally Arriving

After years of operating in a regulatory gray zone, BNPL providers face increasing oversight:

United Kingdom: The Financial Conduct Authority will bring BNPL under formal regulation by July 2026, requiring affordability assessments and complaint procedures.

Australia: BNPL has been brought under the National Consumer Credit Protection Act, ending the sector's regulatory exemption.

United States: The picture is more complex. The CFPB under President Biden moved to regulate BNPL as credit, but the Trump administration has signaled a more hands-off approach. States including California and Connecticut are pursuing their own regulatory initiatives.

The Investment Angle

For investors, the BNPL landscape presents both risks and opportunities:

Risks:

• Pure-play BNPL providers: Companies like Affirm face potential margin compression as credit losses rise and regulation increases compliance costs.
• Retailers dependent on BNPL: E-commerce players that have come to rely on BNPL conversion rates may see sales declines if the product becomes less available or attractive.
• Consumer lenders: Banks and credit card issuers may face spillover effects if BNPL delinquencies lead to broader consumer distress.

Opportunities:

• Credit bureaus: Equifax, Experian, and TransUnion stand to benefit if BNPL reporting becomes mandatory.
• Collection agencies: Rising delinquencies typically lead to increased collection activity.
• Traditional credit: If BNPL becomes less attractive, consumers may return to credit cards—benefiting issuers.

What Consumers Should Know

For individuals who have used BNPL services, several prudent steps can help avoid trouble:

• Track all obligations: Since BNPL loans don't appear on credit reports, manually tracking outstanding balances is essential.
• Prioritize payments: Missing BNPL payments can result in late fees, referral to collections, and eventual credit reporting—even if initial loans weren't reported.
• Understand the true cost: While many BNPL products are interest-free, late fees and the psychological ease of spending can make them more expensive than they appear.
• Avoid stacking: Using multiple BNPL providers simultaneously is a warning sign of financial overextension.

The Bottom Line

Buy Now, Pay Later filled a genuine need—access to credit for consumers underserved by traditional financial products. But the rapid growth, high delinquency rates, and "phantom debt" characteristics create genuine systemic concerns. As the bills from holiday spending come due in January and February, the resilience of both BNPL providers and their customers will be tested. The results could have implications far beyond the sector itself.