Picture this:
You're scrolling through Instagram, see those sneakers you've been eyeing, and at checkout there's a button that says "Pay in 4 interest-free installments." No credit check. No annual fees. Just four easy payments. You click it without thinking twice.
Welcome to the world of Buy Now Pay Later (BNPL)—and if you're under 30, there's a good chance you've already used it.
In 2024, 15% of Americans used BNPL services like Klarna, Afterpay, Affirm, and Zip—up from just 12% in 2022. But here's the kicker: 40% of Gen Z has used BNPL at least once, making it the most popular generation for these services. Meanwhile, traditional credit card companies are watching nervously from the sidelines.
So why are young people ditching credit cards for Buy Now Pay Later? And more importantly—is this financial hack actually helping your budget, or quietly destroying it?
Let's break it down.
What Exactly is Buy Now Pay Later? (And Why It Feels Different Than a Credit Card)
Buy Now Pay Later is exactly what it sounds like: a short-term loan that lets you split purchases into smaller installments—usually four payments over six weeks. The catch? It's interest-free if you pay on time.
Here's how the big players work:
- Klarna: Split purchases into 4 interest-free payments every 2 weeks
- Afterpay: 4 installments, 25% down at checkout, rest spread over 6 weeks
- Affirm: Offers longer payment plans (3-36 months) with some charging interest
- PayPal Pay in 4: No interest, payments auto-debit every 2 weeks
Unlike credit cards that charge 20-30% APR and feel like a financial commitment, BNPL feels more like... budgeting. And that's exactly the appeal.
According to financial experts, BNPL has been described as a "microdose of credit"—it feels manageable, predictable, and transparent. For Gen Z, who watched millennials drown in credit card debt during the 2008 recession, avoiding traditional credit feels like the responsible choice.
But is it really?
Why Gen Z is Choosing BNPL Over Credit Cards
1. No Credit History? No Problem
Getting your first credit card as a young adult is harder than ever. Many Gen Zers either don't qualify for credit cards or are deliberately avoiding them. BNPL services rarely check your credit score, making them accessible to anyone with a debit card.
2. Zero Interest Feels Like Free Money (It's Not)
Credit cards charge interest. BNPL doesn't—as long as you pay on time. For someone just starting to manage money, the appeal is obvious. Why pay 24% APR on a credit card when you can split the cost interest-free?
3. It's Built Into Shopping (And That's The Trap)
BNPL is everywhere: Amazon, Nike, Shein, even grocery apps. It's not a separate financial product you have to apply for—it's baked right into checkout. One click and boom, you've spent money you don't technically have yet.
4. Mental Accounting Makes It Feel Smaller
Paying $150 for a concert ticket hurts. Paying $37.50 four times? That barely registers. Behavioral economists call this "mental accounting"—our brains perceive smaller payments as less painful, even though the total cost is identical.
The Hidden Dangers: Why 42% of BNPL Users Have Made Late Payments
Here's where things get messy.
In 2025, 42% of BNPL users have made at least one late payment—up from 39% in 2024. And Gen Z and millennials are four times more likely to lose track of their BNPL payments than older generations.
Why? Because juggling multiple BNPL plans is like playing financial Jenga.
The Real Risks of Buy Now Pay Later:
1. Late Fees Add Up Fast Miss a payment? You'll get hit with fees ranging from $7-$25 per missed payment. Miss multiple? Those fees stack—and suddenly your "interest-free" purchase costs more than using a credit card.
2. You Can't Track What You Owe Nearly one in three BNPL users have lost track of payments. Unlike credit cards that show your total balance, BNPL loans are spread across different apps. You might have payments due to Klarna, Afterpay, AND Affirm—all on different schedules.
3. It Doesn't Build Credit (Usually) Most BNPL services don't report to credit bureaus, meaning you're not building credit history. But miss payments? Some services will report that, tanking your score without giving you the benefit of on-time payments.
4. Overspending is Shockingly Easy A 2024 Bankrate survey found that 56% of BNPL users struggled with overspending, missed payments, or regretted purchases. When paying feels painless, it's easy to forget you're still spending real money.
5. People Are Using It for Groceries (That's a Red Flag) In 2025, 24% of BNPL users relied on the service to buy groceries—up from 14% a year earlier. If you need payment plans for essentials, that's a signal your budget is stretched too thin.
The Smart Way to Use BNPL: Budget-Friendly Rules
BNPL isn't inherently evil—it's a tool. Like any tool, it can build something great or cause damage depending on how you use it.
Follow These Rules to Stay Safe:
Rule #1: Only Use BNPL for Planned Purchases If it's not in your budget, don't buy it—even if you can split the payments. Ask yourself: "Would I buy this if I had to pay in full today?" If the answer is no, walk away.
Rule #2: Never Have More Than 2 BNPL Loans at Once The more plans you juggle, the higher your risk of missing payments. Keep it simple: one or two max.
Rule #3: Set Up Autopay Immediately Don't rely on memory. Link your debit card and turn on autopay the moment you make the purchase.
Rule #4: Track Everything in One Place Use a budgeting app or spreadsheet to log every BNPL payment due date and amount. Treat them like bills, not shopping receipts.
Rule #5: Build an Emergency Buffer Before using BNPL, make sure you have at least $500 in savings. If an unexpected expense pops up, you won't be forced to miss BNPL payments.
Rule #6: Consider a Credit Card Instead for Big Purchases If you're buying something expensive ($300+), a 0% intro APR credit card might be smarter. You'll build credit, have more time to pay, and avoid juggling multiple payment plans.
BNPL vs Credit Cards: Which is Actually Better for Your First Budget?
| Feature | BNPL (Klarna/Afterpay) | Credit Card |
|---|---|---|
| Interest Rate | 0% (if paid on time) | 20-30% APR |
| Credit Check | Usually none | Required |
| Builds Credit | Rarely | Yes |
| Late Fees | $7-$25 per missed payment | $25-$40 + interest |
| Spending Limit | Varies, often under $1,000 | $500-$5,000+ |
| Fraud Protection | Limited | Strong |
| Best For | Small, planned purchases | Building credit, emergencies |
The verdict? Use BNPL for small, budgeted purchases. Use a credit card (responsibly) for everything else and to build credit history.
What FirstDime Recommends: Your BNPL Game Plan
If you're going to use Buy Now Pay Later, do it smart:
- Limit yourself to 1-2 BNPL purchases at a time
- Only use it for items you've already budgeted for
- Set up autopay and calendar reminders
- Track all your BNPL payments in a spreadsheet or app
- Save $500 before using BNPL regularly
- If you're using BNPL for groceries or bills, that's a sign to cut back
Remember: The fact that BNPL makes spending feel painless doesn't mean it is painless. Every "Pay in 4" button is still a commitment to future-you—and future-you deserves a budget that isn't held together by payment plans.
The Bottom Line
Buy Now Pay Later isn't a scam, but it's not a shortcut to financial freedom either. It's a tool that works brilliantly for disciplined buyers and becomes a trap for everyone else.
Gen Z's instinct to avoid credit cards makes sense—but replacing one form of debt with another that's easier to lose track of isn't the answer. The real solution? Build a budget, start an emergency fund, and use credit strategically to build your financial future.
Because at the end of the day, the best payment plan is the one where you actually own what you buy—not the other way around.
Related Video Resource:
NBC News: 'Buy Now, Pay Later' platforms soar in popularity Watch this NBC News segment featuring Klarna CEO discussing BNPL's surge in popularity and why Americans are turning to these platforms for everything from vacations to groceries.