Robby Soave is a senior editor at Reason.
As the gift-buying season approaches its zenith, Adobe’s 2025 holiday shopping forecast estimates that $20 billionworth of online purchases will have been made in the last two months of the year using a “buy now, pay later” plan. BNPLs have already generated a great deal of fearmongering, but there’s almost certainly no need for panic.
Credit cards are nothing new, of course. Most Americans use them for online retail, brick-and-mortar checkout lines, rent, groceries, entertainment and almost everything else; at the end of the month, about half of them pay what they owe. The rest carry a balance, acquiring added debt as they go. That’s not the only way to BNPL, though. More and more shoppers are doing something called Klarnamaxxing — i.e., using new credit options to delay both repayment and debt accrual. And some observers have concerns: Vox called the new kinds of BNPL “more dangerous than ever.”
Klarna is a financial services company — Affirm is another — that makes it possible for consumers to circumvent credit card companies and temporarily ignore the sticker shock associated with online retail. Instead, Klarna foots the bill, and the customer reimburses the company later, typically in four (or more) biweekly installments, with no interest. (The option is usually offered like other payment choices, such as PayPal.)
There are plenty of reasons to avail yourself of this service, and there’s nothing inherently wrong with paying in installments. It could be that you need the thing now, and you’re reasonably certain you’ll have the money to pay for it pretty soon — maybe a new suit for a job interview. Or perhaps your wallet has already taken a hit this season, and you would like to pause the psychological stress for a while. Again, this isn’t functionally different from using a credit card; like with a credit card, you should check and make sure the eventual interest rate isn’t murderous. Although Klarna’s standard four-installment plan is interest-free, late fees kick in if you don’t clear it by the final installment. Klarna makes its money primarily from fees paid by merchants, who see the interest-free delay as a way to sell more product.
The issue, of course, is that the option to delay payment interest-free — even for a short time — can incentivize people to buy more than they would have otherwise. Media outlets have publisheddire warnings from consumers who plunged perilously into debt because BNPL made them feel comfortable adding fancy handbags to their shopping carts. And the temptation to finance an affordable, one-off consumable item, like a sandwich, is causing considerable media consternation — a phenomenon Business Insider derisively referred to as “Burrito now, pay later.” Then again, credit cards offer the same hazard; naysayers are simply wrong that Klarna and Affirm represent some new, terrifying temptation.
As long as the risk is borne by the fintech companies themselves, there’s little reason to worry. If these companies make loans, and consumers fail to repay them, then they lose money: That’s the market at work.
The real danger would be any kind of government action to bail out either the lenders or borrowers — that would create artificial incentives that empower consumers to make unwise purchases. Already the feds are overly involved in encouraging unwise borrowing: The massive and unsustainable federal college loan program, for instance, is drowning students and graduates in $1.6 trillion of debt. Encouraging young people to take out huge loans in pursuit of degrees that don’t yield jobs was, and is, a costly policy mistake.
As for BNPL, assuming the feds stay out of it, then by all means — enjoy your burrito now and pay for it later. But you will have to pay the bill eventually, and preferably before those late fees appear.
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