Buy Now, Pay Later Costs You More Than a Credit Card. Stanford Proved It.

Klarna's pitch is seductive: four easy payments, zero interest, no credit check. Afterpay and Affirm say the same thing in slightly different fonts. The whole industry exists to make a $400 purchase feel like four $100 nothings. And about half of Gen Z and millennials have decided they prefer this arrangement to credit cards, according to Motley Fool's 2025 survey data.

Then a team of researchers at Stanford decided to check whether that preference was actually making anyone better off.

Ed deHaan, an accounting professor at Stanford Graduate School of Business, and three colleagues analyzed banking and credit card data for 10.6 million U.S. consumers. They matched 572,000 pairs of BNPL users and non-users with similar financial profiles and compared what happened to each group's finances over the year after BNPL adoption. The study, published in Management Science in 2024 under the title "Buy Now Pay (Pain?) Later," found exactly what its name implies.

BNPL users racked up 4% more overdraft charges than their matched counterparts. They paid 1.1% more in credit card interest. They got hit with 2.3% more credit card late fees. For people who shopped frequently at stores offering BNPL at checkout, the damage was worse: 8.9% more overdraft charges and 8.4% more late fees, adding up to about $176 per year in charges that wouldn't have existed otherwise. For especially vulnerable users, the figure hit $252.

"The average effect of using BNPL is negative, which is surprising," deHaan said. He was more blunt in an interview with the University of Washington: "BNPL is just another version of easy credit, and we suspect that some people are being harmed by this."

The core finding upends the entire BNPL marketing narrative. These services are sold as credit card replacements. In practice, they're credit card supplements. People who start using BNPL don't put their Visa in a drawer. They keep swiping, keep accruing interest, and now they're also juggling four-payment plans from Klarna on top of it.

To understand why this happens, look at the incentive structure. BNPL providers cut off your credit immediately if you miss a payment. Your credit card company does not. So when money is tight and you have to choose between paying the Afterpay bill or the Chase bill, you pay Afterpay, because you'll lose access to it instantly. Chase just charges you interest and waits. DeHaan has pointed this out directly: BNPL lenders "do a great job of having people prioritize those payments" over their credit card payments. The result is that BNPL's low default rate (1.83% in 2023, per the Richmond Fed, versus 4.19% for credit cards) comes partly at the expense of your credit card balance, which quietly grows while you're busy keeping your BNPL accounts current.

And the scale of this trade-off is growing. The Richmond Fed estimates BNPL processed roughly $70 billion in transactions in 2025, about 1.1% of $6.3 trillion in total credit card spending. That sounds small. But BNPL users aren't average consumers. They tend to carry higher balances on all their unsecured credit products, according to the CFPB. BNPL isn't causing the financial stress for most of these users. It's amplifying stress that already exists.

Four payments of $100 is not the same as $400 (except it is)

The reason BNPL increases spending isn't mysterious. A $400 charge on a credit card statement feels like $400. Four payments of $100 spread over six weeks feels like basically nothing. Your brain files each installment as a minor expense, disconnected from the thing you bought. The sneakers are already on your feet. The payments are just background noise.

Nearly 60% of BNPL users admit they've used the service to finance a purchase they couldn't otherwise afford, per Motley Fool. Not "wouldn't otherwise buy." Couldn't afford. That distinction matters. A budgeting tool helps you manage money you have. A debt tool lets you spend money you don't have. BNPL is marketed as the first thing and functions as the second.

The stacking problem makes this worse. The CFPB found that more than three out of five BNPL borrowers held multiple simultaneous loans during 2022, and a third had loans from multiple providers. Each one has its own due date, its own auto-debit from your checking account, its own late fee if your balance is short when it hits. Nineteen percent of BNPL users told Motley Fool they've completely lost track of upcoming payments. When an auto-debit bounces, you don't just get a BNPL late fee. Your bank charges an overdraft fee on top of it. That double-hit scenario is exactly what the Stanford researchers were measuring, and exactly what showed up in the data.

And BNPL has moved well beyond discretionary shopping. About 19% of users now report using these services for groceries and household basics. When you're splitting a grocery run into four installments, something has gone structurally wrong with your cash flow, and installment plans are just putting a nicer frame around the problem.

The protections you give up are the ones you'll miss most

Credit cards have problems. The average APR is brutal if you carry a balance. The minimum payment trap is real. But credit cards also come with a set of consumer protections that most people don't think about until something goes wrong, at which point they become the most important feature on the card.

If someone steals your credit card number, federal law caps your liability at $50, and every major issuer waives even that. If a product never arrives or arrives broken, you call your card company and they investigate. They can reverse the charge. That process is called a chargeback, and it exists because the Fair Credit Billing Act requires it. Credit cards also frequently extend manufacturer warranties, cover accidental damage, and insure purchases against theft for 90 to 120 days after you buy them. You're probably not thinking about any of this when you tap your card at a coffee shop. You'd think about it very quickly if you bought a $1,200 laptop and it arrived shattered.

BNPL offers almost none of this. You've taken out a loan. The merchant already got paid by the BNPL provider. If the item is defective, you're stuck in a three-way negotiation between yourself, the merchant, and the BNPL company while your installment payments keep coming due. Thirty-two percent of BNPL users have encountered problems with their services, according to Motley Fool, and 21% specifically had trouble returning items. With a credit card, a return is a return. With BNPL, a return is a headache that might take weeks to resolve while you're still making payments on something you sent back.

Then there's the rewards gap. A credit card with 2% cash back on a $400 purchase gives you $8. BNPL gives you zero. If you pay your credit card balance in full every month (which eliminates interest entirely), the card is literally paying you to use it. BNPL charges the merchant 2 to 8% per transaction and passes none of that to you. The economics only work in your favor if you can't pay in full, which brings us back to the original problem.

Your credit score is about to care about BNPL (but only in one direction)

For most of BNPL's existence, these loans lived in a credit reporting black hole. Providers didn't report to bureaus, which meant on-time payments couldn't help your score and missed payments (usually) couldn't hurt it. That was a weird trade-off: BNPL couldn't build your credit history, but it also couldn't destroy it.

That's changing. FICO began incorporating BNPL data into its scoring models in late 2025. But here's the problem with how it's rolling out: Affirm is currently the only major provider reporting payment data to credit bureaus. If you use Klarna, Afterpay, or PayPal Pay Later and pay on time every single time, your credit score almost certainly won't reflect it. But if you miss payments and the account gets sent to a debt collector, that collector will report to the bureaus, and your score takes the hit. You get the downside risk without the upside reward.

This asymmetry matters most for the people BNPL claims to serve: young adults building credit for the first time. More than 20% of Gen Z has never used a credit card, according to a December 2025 U.S. News survey. Thirty percent of all respondents said they avoid credit cards altogether because of debt concerns. The generation that's most afraid of credit card debt is gravitating toward a product that, per Stanford's research, makes their credit card debt worse when they do use cards, and doesn't build their credit history when they don't.

A credit card, used responsibly (charge what you can afford, pay the statement balance in full every month, never pay a cent in interest), is one of the most reliable tools for building a credit score. Every payment gets reported. Your utilization ratio is tracked. Your payment history, which is 35% of your FICO score, grows month by month. For credit building, BNPL is a bicycle with no chain. The pedals move, but you're not going anywhere.

The credit card industry's response is actually pretty good

The major credit card issuers watched BNPL eat into their younger customer base and responded by building BNPL-style installment features directly into their own products. Chase My Chase Plan, American Express Plan It, and Citi Flex Pay all let you select a specific purchase from your statement and break it into fixed monthly payments with a small fee instead of revolving interest. These hybrid features swept JD Power's 2025 BNPL customer satisfaction ratings, outscoring every standalone BNPL provider.

The appeal is obvious: you get the installment structure of BNPL with the fraud protection, dispute rights, and credit-building benefits of a credit card. Same payment flexibility, far more consumer protection. Apple reached the same conclusion from the other direction. It launched Apple Pay Later in 2023 and killed it a year later, shifting to bank-issued installment plans built into Apple Pay. The company essentially conceded that standalone BNPL couldn't compete with credit card infrastructure.

Zero-percent introductory APR cards are the other tool most people overlook entirely. Cards that offer 0% APR for 15 to 21 months on new purchases give you genuinely interest-free financing with full credit card protections, rewards earning, and credit reporting. That's not four payments over six weeks. That's up to 21 months to pay off a large purchase without interest, and every on-time payment builds your credit score. If you qualify for one of these cards, there is no scenario where BNPL is the smarter choice.

When BNPL is actually worth using

BNPL isn't universally terrible. It fills a real gap for people who can't get approved for a credit card at all: the CFPB found that most BNPL users have subprime or deep-subprime credit scores. If a secured credit card isn't an option and a necessary purchase can't wait, a single BNPL plan (one plan, one purchase, paid off before you open another) can work. The charge-off rate on BNPL loans was 1.83% in 2023, lower than the 4.19% credit card charge-off rate, according to the Richmond Fed, which suggests that when used in isolation and paid on time, it's a functional product.

The problem is that people rarely use it in isolation. They stack plans, lose track of due dates, and end up in the overdraft-plus-late-fee spiral that Stanford documented. If you find yourself juggling more than one BNPL plan or using it for groceries, those are signals to stop and examine the underlying budget, not to open another four-payment plan somewhere else.

We wrote about the best credit cards for 2026 and about how to build your credit score from scratch earlier this year. Both are better starting points for anyone trying to manage spending without digging a hole. BNPL's checkout button is engineered to feel effortless. That's the product working exactly as designed. Just not for you.

Frequently asked questions about buy now, pay later

Does buy now, pay later affect your credit score?

Increasingly, yes, but mostly in the negative direction. FICO began incorporating BNPL data in late 2025, but Affirm is the only major provider actively reporting on-time payments to credit bureaus. If you miss payments and the account goes to collections, that will damage your score regardless of the provider. On-time BNPL payments through Klarna, Afterpay, or PayPal are unlikely to help your score.

Is BNPL really interest-free?

Short-term "pay in four" plans are typically interest-free if every payment is made on time. Longer-term installment plans (available through Affirm and others) carry interest rates ranging from 10% to 36% depending on creditworthiness. Late fees apply across all plan types. And if an automatic BNPL debit overdraws your checking account, your bank's overdraft fee effectively becomes a hidden cost of the "free" financing.

Is BNPL safer than a credit card?

No. Credit cards offer legally mandated fraud protection, chargeback rights for disputed purchases, and often include extended warranties and purchase protection. BNPL offers limited or no equivalents. Resolving a problem with a BNPL purchase (item not delivered, arrives damaged, merchant won't refund) is significantly harder than disputing a credit card charge.

What should I use instead of BNPL?

A zero-percent introductory APR credit card offers the same benefit (interest-free payments over time) with better protections, rewards, and credit-building benefits. Card-linked installment plans from Chase, American Express, and Citi replicate BNPL's payment structure within your existing credit card account.