BNPL: Broke Now, Pay Later, and the way it changes how we consume

Your cart says €150. The checkout suggests: “Pay in five easy interest-free instalments of €30.”  The decision feels lighter. The choice seems clear. It might be the perfect money glitch. Buy Now, Pay Later has made it easier than ever to overspend, write members of the Anesec Investment Club in this guest contribution. It seems too good to be true. Maybe it is.  

From everyday purchases like food to vacations, “Buy Now, Pay Later” has become a go-to payment method for many Gen Z’s daily life. Buy Now, Pay Later (BNPL) is a short-term financing option that allows consumers to split a payment into smaller, interest-free instalments typically paid back over a few weeks or months. Unlike traditional credit cards, BNPL services usually skip the credit check, which is especially appealing to young consumers with limited access to credit. Popular providers of Buy Now, Pay Later services include Klarna, Paypal Pay Later, Scalapay and Clearpay. They are present in the majority of online shops, but their reach and appeal have increased in recent years by becoming an available payment option in-store and offering physical cards for your wallet.

A growing number of young consumers are embracing BNPL services, drawn by the ease and flexibility they offer in a world that increasingly values convenience over commitment. For many in Gen Z and the Millennial generation, it’s not just about affordability, it’s about avoiding the stress of large, upfront payments and gaining greater control over how and when they spend. “If it doesn’t make the purchase more expensive, then it’s basically an interest-free loan,” says Julien Sturer.

BNPL options significantly increase the likelihood of a purchase, with conversion rates rising from 17% to about 26%, while also boosting average basket sizes by around 10%. Retailers have eagerly adopted buy-now, pay-later (BNPL) services, viewing them as a powerful tool to convert hesitant browsers into buyers and increase order values. Unfortunately, the most significant increases in spending are often observed among financially vulnerable consumers, particularly those who are already reliant on credit. Users of BNPL are more likely to miss bill payments, face housing instability, or fall behind financially, and it’s not a coincidence.

Suppose someone can't afford to pay €30 for a meal upfront. How realistic is it to expect them to manage multiple smaller payments? It’s a troubling paradox: the very tool marketed as a solution to affordability can lead users to spend beyond their means. Studies show that BNPL users are more likely to overspend, drawn in by the illusion of flexibility while facing the reality of mounting debt. “It can be dangerous for shopaholics as it reduces the feeling of accountability and responsibility,” says Holger B., a Luxembourgish student.

No free lunch

Of course, there are no free lunches in life. Whilst BNPL services often claim to be interest-free, that only holds true if you repay on time. The catch? Missing a payment can come with steep consequences, such as late fees that can be as high as 25% of the original purchase amount, far more punitive than the 15% annual interest charged by most credit cards in Luxembourg. BNPL services often debit automatically to avoid defaults due to negligence, but that only works if you have sufficient funds; otherwise, you will be hit by the fees. According to a Federal Reserve survey and Affirm, one in four BNPL users has already missed a payment, with an average outstanding balance of $736.

Reasons for overconsumption

So what drives this pattern of overspending? The answer lies in human psychology. Studies show that buyers who use BNPL are not only more likely to make a purchase, but also tend to make larger purchases. The reason behind it is that the transaction is done via an app that only requires one push of a button. So when the user sees something they like, they are less likely to pause and reflect, because the financial impact doesn’t feel immediate. This psychological loop helps explain the next step: after making a purchase, the brain releases dopamine, a feel-good chemical linked to reward. That rush can be addictive.

For many BNPL users, chasing that short-term high starts to outweigh thoughtful decision-making. The question becomes less “Do I need this?” and more “How good will it feel to buy it right now?” This leads to overconsumption, where people buy for emotional satisfaction rather than genuine need. Suddenly, it’s easy to stack up a pile of unnecessary purchases, with 20 new items in a week and no real plan on how to pay them off. 

Over time, what begins as a small, manageable payment snowballs into a cycle of dependency.

After the purchase, the user has accumulated some debt. But that’s a problem for the future, right? “There’s plenty of time left to repay, so you plan to do it eventually in the future.” At the moment, it feels easier to ignore the debt and focus on something more enjoyable. This phenomenon is called the present bias, a cognitive bias where people prioritise immediate rewards over future responsibilities. It's like starting to study the week before exams instead of following the coursework continuously. It’s a form of financial procrastination, and it plays a major role in how BNPL influences spending behaviour. 

Young people, in particular, are more susceptible to this bias. They are financially more constrained, but less literate and less aware of their human biases and instincts. Over time, what begins as a small, manageable payment snowballs into a cycle of dependency. Now the debt spiral kicks in. Users become even more financially constrained due to their short-term debts and are forced to continue using BNPL to finance their purchases.

Challenges for companies

However, the risk of BNPL doesn't just affect consumers; it also poses challenges for the companies offering these services. Companies like Klarna face massive losses, largely due to the fragility of their customer base. Despite revenue growth, Klarna’s losses doubled in 2025, highlighting the instability of a model that relies on financially vulnerable consumers. In the long run, this raises serious questions about the sustainability of the BNPL business itself.

Another example is Apple, which discontinued its US-only BNPL service only a year after its launch due to regulatory hurdles and rising operating costs. Instead, it partnered with competitors like Klarna and Affirm to achieve a global reach. This strategy shifts the risks to its partners whilst still providing the same service to its clients and earning a commission from each transaction through Apple Pay.

Having focused on BNPL, it naturally brings up the comparison with credit cards. Let’s break down the key differences. First of all, credit cards are more widely accepted than buy now, pay later (BNPL) services, as the latter are limited to specific retailers. BNPL allows customers to split their purchases into fixed, deferred payments, often without interest, provided they are paid back on time. In contrast, although credit cards frequently come with higher fees and interest charges, customers can benefit from cash back or points while contributing to building a positive credit history, which is crucial for future loans, for instance.

Another striking difference is that obtaining a credit card requires a hard credit check, which involves analysing your credit score, income, and history with the issuer. In contrast, BNPL services can offer instant approval with minimal checks, making them far more accessible for those with a poor financial history. However, BNPL services are starting to offer more, even rivalling banks. For example, in Europe, Klarna offers long-term loans, which allow customers to spread larger purchases, such as home renovation costs or new furniture, over a six- to 36-month period with interest rates starting at 7.99% or their newest introduction, their debit card, where users can choose to pay the conventional way or with the buy-now-pay-later system.

Relentless growth

The BNPL payment market is growing relentlessly, as the numbers show. Between 2021 and 2024, it recorded a compound annual growth rate of 21.7%, and it is projected to continue with a growth rate of 10.2% between 2025 and 2030, says a study made by Globe Newswire in the first trimester of 2025. This tendency has huge economic consequences. Although it can stimulate economic activity in the short term, it inevitably leads to rising private debt levels, which, in the long run, can impact economic stability and potentially affect financial institutions, leading to long-term instability.

BNPL is set to become a permanent fixture in the way we pay. With fintech leaders like Klarna expanding and regulators catching up, the service is evolving fast. For retailers, the benefits are already clear: higher revenue because customers are more willing to spend. However, in Luxembourg, adoption rates remain low. Whether that reflects cultural caution or simply a lack of visibility, the coming years will show if BNPL has a place in the grand duchy’s financial habits.

*Kevin Freitas, Jack Liu, Eva Zastawnik and Maxi Ullrich are members of the Anesec Investment Club.