How ‘buy now, pay later’ options quietly add interest fees

Laura Seguin loves the option to split big purchases into multiple payments using so-called “buy now, pay later” (BNPL) financing. 

She told Straight Arrow she recently bought football tickets for nearly $700.

“I can pay $171 every two weeks,” said Seguin, 46, of Los Angeles.

But she needs to be careful. BNPL company Sezzle will tack on up to $2 to her initial payment if she doesn’t have a bank account set for future payments.

“Sezzle is smart,” she said of the company’s fee structure. It assesses late fees of up to $17 and charges up to a $7.50 fee to reschedule payments.

BNPL was first pitched as a low-cost alternative to traditional credit, splitting a payment into four installments paid every two weeks.

But new research paints a more complicated picture, with hidden fees and debt carrying interest, giving BNPL critics fresh ammunition in their fight for stricter regulation. 

A third of BNPL loans accrue interest and roughly half of users have missed a payment resulting in late fees, according to a recent study from the advocacy organization Protect Borrowers.

“The minute you stray from the pay-in-four, all of a sudden you’re in installment loan land,” Lisa Gill, an investigative reporter for Consumer Reports, told Straight Arrow.

She worries that cash-strapped consumers looking for a lifeline may miss key details about the debt they’re taking on.

Loans “can run for months or a year or sometimes longer,” Gill said. 

The pay-later industry has long defended its products, emphasizing figures suggesting the majority of consumers borrow responsibly.

“We have our standards for buy now, pay later companies,” said Ian P. Moloney, chief policy officer for the American Fintech Council, which counts BNPL companies as members. “One of those is that any late fees are fully disclosed.”

Is buy now, pay later really interest-free?

The payment method originated in Australia and came to the United States in the 2010s, taking off during pandemic-era lockdowns when consumers gravitated to online shopping. It proved especially popular among young adults: A 2022 survey from the trade publication PYMNTS found that Gen Z and millennial shoppers prefer the option because it carries no interest.

But Protect Borrowers’ research suggests BNPL users are increasingly pushed toward interest-bearing loans.

In 2026, 37% of BNPL loans carried interest, more than double the 16.5% in 2021, according to the report. 

Gill said she and her colleagues examined BNPL check-out options and found a confusing array of choices.

“You think you’re going to go pay-in-four for free or low cost, but can wind up paying interest,” Gill said.

The Swedish BNPL company Klarna presents shoppers with several pay later choices at online checkouts and generally highlights the option with the lowest monthly payment. While that option includes the highest interest rate, Klarna does not tell consumers that it’s the most expensive choice.

Spokespeople for Sezzle and Klarna did not respond to requests for comment.

Affirm — another prominent BNPL player — is especially aggressive in offering interest-bearing loans, consumer advocates told Straight Arrow. Loans that charge interest accounted for 70% of Affirm’s transaction volume, according to its most recent quarterly earnings report.

A spokesperson said Affirm does not charge late fees and provided a link to a calculator offering details on interest rates and loan duration.

BNPL companies advertise annual interest rates between 0% and 36%, but consumer advocates are skeptical that anyone qualifies for 0% interest.

“In order to get a zero or low cost loan, your credit is going to need to be so good that you probably qualify for a terrific credit card,” Gill said. “It would be unlikely that you’re the customer they’re looking for.”

What consumer protections exist for buy now, pay later?

The BNPL industry was largely unregulated until the Biden-era Consumer Financial Protection Bureau unveiled an interpretive rule treating pay later companies like credit card networks. Credit cards are subject to the Truth in Lending Act, which — among other things — mandates disclosures related to fees and interest rates and requires companies to have protocols for refunds and disputes.

The industry vociferously opposed the rule and the second Trump administration withdrew it last year.

Now “BNPL models don’t have those protections,” Christine Hines, senior policy director for the National Association of Consumer Advocates, told Straight Arrow. 

Protect Borrowers is among the groups calling for change. BNPL should be subject to “sweeping protections that end deceptive pricing, bring down the cost of BNPL debt and ban predatory practices,” the organization concluded.

The group found that 46% of U.S. BNPL users have used pay-later loans to cover groceries and 40% used them to cover other debts.

“There’s some concerning expenditures in that report,” said Adam Rust, director of financial services for the Consumer Federation of America. He cited the use of BNPL for credit card bills, crypto purchases and gambling. 

“That raises red flags about the suitability of the loan product,” he told Straight Arrow.

Low-income shoppers are the most likely to use pay-later financing, he noted.

The data firm Consumer Edge, which releases quarterly pay later reports, found that 23% of renters — who generally make less money than homeowners — use BNPL compared with 13% of homeowners, according to its July trend report.

“The only income group to see acceleration in adoption [in the second quarter] is the lowest income group,” Michael Gunther, senior vice president for research and market intelligence at Consumer Edge, told Straight Arrow.

BNPL late fees equal $7 to $8 per missed payment, Protect Borrowers’ report said, often surpassing the cost of interest.

BNPL use grows increasingly fraught when consumers take out multiple loans at once, Hines said. More than 60% of BNPL have multiple simultaneous loans, the CFPB found in research published last year.

“Every time they take out a loan, it’s a different loan and the payment may have a different due date,” she said. “That gets complicated.”

Seguin said she avoids late fees by setting up direct withdrawal and paying loans off early when she can. 

“But I can see how this could get overwhelming,” she said.

Do most people pay off buy now, pay later loans on time?

It’s in the best interest of the pay-later industry to loan to consumers with the ability to repay, Moloney told Straight Arrow.

“Ultimately the loans are underwritten properly to ensure that they’re not overburdening consumers with debt,” he said.

Moloney and other industry defenders cite research suggesting BNPL users are mostly responsible. 

The American Fintech Council, for example, says 96% of individual BNPL loans are repaid on time.

But Rust said that statistic needs context.

A single credit card bill includes multiple purchases and is paid off once a month, whereas a single consumer may have multiple BNPL loans with different due dates

If a consumer misses a payment on one of 10 loans “the default will look like 10%, whereas if you miss a single credit card payment, the default rate would look like 100%,” Rust said.

Moloney noted that the Protect Borrowers survey only included about 450 BNPL users and pointed to the 2025 CFPB study, which showed that less than 2% of BNPL loans are “charged off” — or written off as bad debt. That doesn’t include a loan with a single late or missed payment.

In a February brief, a Federal Reserve Bank of Richmond researcher suggested charge-offs may have risen since 2023, citing a July LendingTree study that found 41% of BNPL users made at least one late payment in the previous 12 months. In July, LendingTree said that figure had risen to 47%.

Buy now, pay later “may seem like an easy way to manage for vulnerable borrowers who may need that cash immediately, but at the other end are costs,” Hines said.

Editor’s note: This story has been updated to clarify the share of Affirm’s transaction volume that includes interest. as well as to clarify the nature of the reports cited from the data firm Consumer Edge.

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