Buy now, pay later carries real risks for Gen Z users, and those risks are largely invisible at checkout: stacked loans across multiple providers, late fees paired with bank overdraft charges, collections and credit damage when payments slip, weak federal refund rights, and refund flows that keep auto-debiting your account after you’ve returned the item. About two-thirds of Gen Z consumers report having used a BNPL service at least once, the highest adoption rate of any generation, so these risks land on younger borrowers first and hardest.
How Gen Z Actually Uses BNPL
Recent survey data puts BNPL adoption at roughly 64% among adults aged 18-28, compared with about 29% of baby boomers. Nearly 40% of Gen Z users make BNPL purchases weekly. This isn’t occasional financing for a big-ticket item. It’s routine spending.
The average BNPL user spends about $289 per month across their accounts, but the average individual loan is closer to $131. Users aren’t financing one large purchase — they’re making several small ones. Borrowers averaged 6.3 loans per lender in 2023, up 11% from the year before.1Consumer Financial Protection Bureau. Buy Now, Pay Later Market Trends and Consumer Impacts
Clothing still leads the category, but about a quarter of BNPL users now finance groceries, roughly double the rate from two years ago. Food delivery, event tickets, and personal care items have all become common. When you’re splitting a $40 grocery order into four payments, the tool has stopped being about affordability of large purchases and started being about cash flow on necessities.
The Loans Stack Faster Than You Notice
Opening a BNPL account takes almost nothing: no hard credit check, instant approval, minimal income verification. That ease is the risk. CFPB research found that about 63% of BNPL borrowers had multiple simultaneous loans at some point during a given year, and a third were borrowing from multiple BNPL lenders at the same time.2Consumer Financial Protection Bureau. CFPB Research Reveals Heavy Buy Now, Pay Later Use Among Borrowers With High Credit Balances and Multiple Pay-in-Four Loans
Younger borrowers are the most exposed. Among BNPL users aged 18-24, these loans made up 28% of their total unsecured consumer debt, compared with an average of 17% across all age groups.2Consumer Financial Protection Bureau. CFPB Research Reveals Heavy Buy Now, Pay Later Use Among Borrowers With High Credit Balances and Multiple Pay-in-Four Loans
BNPL borrowers also tend to carry higher balances on credit cards, personal loans, and student loans. The CFPB found that credit card utilization rates were already climbing before a borrower’s first BNPL loan, suggesting BNPL often enters the picture when existing credit is already strained. About 39% of Gen Z BNPL users report having made at least one late payment, the highest rate of any generation.
Late Fees Ride on Top of Overdraft Fees
Short-term pay-in-4 plans are usually interest-free. Interest-free doesn’t mean penalty-free. Most BNPL lenders charge late fees when you miss a scheduled payment, and those fees are large relative to the small loan sizes involved.3Consumer Financial Protection Bureau. Do Buy Now, Pay Later (BNPL) Loans Have Fees?
CFPB data from major BNPL lenders puts the average assessed late fee at about $10, though the average amount actually collected drops to roughly $6. On a $131 average loan, one late fee is a meaningful hit. Policies vary — Affirm charges no late fees on any of its products, while others cap fees at a percentage of the missed installment or a flat dollar amount.
The less obvious cost is at your bank. BNPL payments auto-debit from a linked debit card or checking account, so a failed payment can trigger overdraft or non-sufficient-funds fees from your bank on top of anything the BNPL provider charges. Federal banking regulators have flagged this specifically as a BNPL risk, because the combination of automatic withdrawals and short payment intervals creates exposure to fees borrowers don’t anticipate.4Office of the Comptroller of the Currency. Retail Lending: Risk Management of Buy Now, Pay Later Lending
What Happens if You Fall Behind
Missed payments freeze your account and cut off new purchases. Accounts that stay delinquent long enough get charged off and sold to third-party debt collectors. In 2023, about 1.8% of all BNPL loans ended in charge-off, down from 2.6% the prior year.1Consumer Financial Protection Bureau. Buy Now, Pay Later Market Trends and Consumer Impacts
Once a BNPL debt reaches a collector, it’s likely to appear on your credit report as a collection account, which will severely damage your credit score.5Consumer Financial Protection Bureau. What Happens if I Can’t Pay Back a Buy Now, Pay Later (BNPL) Loan? That’s the asymmetry to keep in mind: missing payments can wreck your credit even when paying on time does nothing to build it.
Your On-Time Payments Might Not Build Credit
Whether BNPL activity shows up on your credit report depends on the provider, and the picture is uneven. Historically, most BNPL transactions were invisible to the major bureaus, meaning on-time payments earned you nothing while missed payments could still hurt you if they went to collections.
Affirm changed its approach in 2025, announcing it would report all pay-over-time products, including pay-in-4 loans, to both Experian and TransUnion starting in spring 2025.6Affirm Holdings, Inc. Affirm Expands Credit Reporting With TransUnion to All Pay-Over-Time Products7Experian. Affirm Expands Credit Reporting With Experian to Include All Pay-Over-Time Products If you use Affirm and pay on time, those payments now build your file.
Klarna and Afterpay have gone the other way. Both are withholding pay-in-4 data from credit bureaus, arguing that existing credit scoring wasn’t designed for short-term installment products and could unfairly penalize their customers. Klarna does report its longer-term interest-bearing loans, but the short-term plans that make up most of its U.S. business stay off the record. Afterpay has said it won’t change course until it sees evidence that reporting will help rather than hurt borrowers’ scores.
BNPL applications almost always involve a soft credit check, which does not affect your score. Hard inquiries are reserved for larger, longer-term installment loans that resemble traditional financing.8Consumer Financial Protection Bureau. Will a Buy Now, Pay Later (BNPL) Loan Impact My Credit Scores?
Refund and Dispute Rights Are Weaker Than a Credit Card’s
In 2024, the CFPB issued an interpretive rule classifying BNPL lenders as credit card issuers under the Truth in Lending Act. That would have required BNPL companies to investigate billing disputes, pause payments during investigations, and issue refunds when consumers returned products.9Consumer Financial Protection Bureau. CFPB Takes Action to Ensure Consumers Can Dispute Charges and Obtain Refunds on Buy Now, Pay Later Loans
That rule is no longer in effect. The CFPB determined it was “procedurally defective,” has indicated it will not reissue it, and has said it is “contemplating taking appropriate action to rescind” the interpretive rule entirely.10Consumer Financial Protection Bureau. CFPB Announcement Regarding Enforcement Actions Related to Buy Now, Pay Later Loans BNPL users cannot currently count on the same dispute and refund rights that credit card holders have under federal law.
Some protections exist independently under Regulation Z’s billing error resolution rules, which cover disputes about goods never delivered, delivered to the wrong address, or that didn’t match what was ordered. To invoke them, you have to send written notice to the creditor within 60 days of the statement containing the error. Regulation Z does not cover complaints about the quality of goods you’ve already accepted.11Consumer Financial Protection Bureau. Regulation Z – Billing Error Resolution Whether individual BNPL providers are subject to these rules without the interpretive rule remains legally uncertain.
Practically, if you need a refund, your rights depend on the provider’s own policies rather than federal law. Read the return and dispute policy before you buy.
Returns Get Messy While Payments Keep Coming
Returns are where BNPL breaks down in practice. When you return an item bought with a credit card, the refund flows back to your card. With BNPL, the refund has to flow back through the BNPL provider, and scheduled payments may keep auto-debiting from your bank account while the return is being processed. You can end up paying installments on something you already sent back.
Providers handle this differently. Some pause your payment schedule once the merchant confirms the return; others require you to keep paying until the refund clears. Partial refunds may leave part of the original loan balance in place. The refund itself often takes two to four weeks after the merchant processes their side, longer than a standard credit card refund.
Before returning anything bought with BNPL, contact both the retailer and the BNPL provider. Keep tracking numbers and screenshots of every message. If payments continue after the return is confirmed, dispute the charges in writing with the provider.
When BNPL Debt Becomes Unmanageable
BNPL debt is treated as general unsecured debt in bankruptcy, the same category as credit card debt. In a Chapter 7 filing, BNPL balances are eligible for discharge and can be wiped out. In Chapter 13, they’re grouped with other unsecured creditors, and you may pay only a fraction of the balance over a three-to-five-year plan.
One exception matters. If you use BNPL for luxury goods totaling more than $900 from a single creditor within 90 days before filing, the law presumes you didn’t intend to repay. A creditor or trustee can challenge the discharge of those specific debts, and a court may rule them non-dischargeable.12Office of the Law Revision Counsel. 11 U.S. Code 523 – Exceptions to Discharge Necessities like groceries and basic clothing are not the target — the rule targets discretionary spending that looks like loading up on goods you never planned to pay for.
Filing bankruptcy also triggers an automatic stay, which immediately stops collection calls, lawsuits, and wage garnishments from BNPL providers and any collectors who’ve bought the account. Because BNPL debt typically involves several small loans across multiple providers, each legal creditor has to be identified and listed separately. The lender of record may be a partner bank rather than the BNPL brand name on the app, so check your loan agreements when preparing to file.