The buy now, pay later industry allows consumers to buy something immediately and pay in installments without the need for lengthy application and approval processes or high credit scores.

The buy now, pay later industry allows consumers to buy something immediately and pay in installments, typically without the need for applications or credit scores associated with credit cards. BNPL has boomed in the last decade, led by fintech companies Affirm, Klarna, and Afterpay, which have targeted young adults. Some critics say BNPL is a reinvented version of payday loans that allow borrowers easy access to cash with relatively few barriers.

While they're marketed as "interest-free" loans, BNPL loans often have penalties for late payments, such as late fees in varying amounts depending on the BNPL company used to make the purchase. BNPL users often pay 25% of the BNPL loan at checkout, and then pay the remaining balance in three more installments over the course of roughly six weeks, depending on the BNPL company and agreement.

Some people use buy now, pay later apps as an alternative to credit cards. BNPL services have a lower barrier to entry than credit cards—many frequent BNPL users have low credit scores.

FICO rolled out its first-ever BNPL-specific credit scoring models in June 2025. While missed installments can now negatively impact a credit score, there's also the potential for on-time BNPL installment payments to help boost scores.

When a merchant partners with a buy now, pay later app, consumers are more likely to spend more money with that merchant—meaning that the merchant is willing to pay a small fee in exchange for the ability for customers to pay with buy now, pay later.

The modern BNPL model didn't take off until the COVID-19 pandemic, when consumers were stuck at home and lockdowns forced them to shop online rather than in person. The number of US BNPL loans grew more than tenfold from 2019 (16.8 million) to 2021 (180 million), according to a Consumer Financial Protection Bureau report.

Almost 24% of buy now, pay later users have missed payments, with younger users (32% of 18- to 29-year-olds) being more likely to fall behind on payments than their older counterparts. (Only 12% of adults age 60 or over had done the same.)

Apple rolled out its own buy now, pay later service in 2023, but Apple shut it down the following year. Instead, Apple made changes to let its Apple Pay users make purchases and access installment loans through BNPL company Affirm.

Despite these merchants paying roughly 2% to 8% of each sale's cost (more than they pay for most credit card processing fees), they're signing on, in part, because BNPL can help them improve their conversion rates at checkout.

Buy now, pay later loans come with some risks, such as the hefty late fees that can add up over time in the case of missed payments. However, personal finance experts say that tactics like reading the fine print can help consumers use these financial tools more safely.

Given the lack of data around BNPL services in comparison to other financial products such as credit cards, the CFPB has conducted research to better understand BNPL products and how they could harm and benefit consumers.

Given somewhat limited regulation in the BNPL space, data about its usage is limited—many BNPL firms have resisted sharing information about user purchases, finances, and more thus far. As more people begin using buy now, pay later services, experts are concerned about whether BNPL is adding a new layer of "hidden leverage" to the economy.

Klarna was founded in 2005 in Sweden under the name Kreditor long before BNPL apps became commonplace. The podcast hosts interviewed founder and CEO Sebastian Siemiatkowski in 2024, where he shared the story of how he built the company.

BNPY company Klarna went public on the NYSE in September 2025, roughly 20 years after it was founded. At the time, Klarna made roughly three-quarters of its revenue via merchant fees, charging a small premium for each purchase.

Most of the industry's prominent players were created since 2010, and are still in a growth phase. These institutions have broadly disrupted traditional banking and have pushed physical banking locations toward obsolescence.

That's just one signal of the industry's massive growth. Investments in the global fintech industry have grown from $4B in 2010 to $92.3B in 2021, as both businesses and consumers seem to quickly adopt new fintech products, from digital payment apps to robo-advisers.

One of the reasons payday lending flourished for nearly two decades is that most banks charged high overdraft fees and didn't offer small loans. However, since 2018, banks have increased their small loan options. Supporters say this provides safer alternatives for consumers, as banks are subject to more regulatory measures and are less likely to allow consumers to keep rolling over loans.

In the early 1900s, unlicensed "salary lenders" used to give consumers one-week loans at annualized percentage rates of more than 100%. But wage garnishment and financially abusive practices led some states to create special licenses for lenders and implement rate caps to protect consumers. In the 1990s, a series of deregulations in various states opened the door for the modern payday lending industry to take off.

More than 1.3 billion adults worldwide do not have access to basic banking services as of this writing—but some experts believe that the fintech industry can help with that by targeting groups of people who have historically been underserved by traditional banks.

Some buy now, pay later services do a soft credit check rather than a hard credit check, like credit card companies would do when someone applies for a card. While hard credit checks can impact your credit score, soft pulls typically do not.

Some apps, like EarnIn, allow users to get money from their paycheck in advance. These apps access users' banking information, allowing the company to immediately take back any borrowed money and track users' financial situations to evaluate their risk. Unlike traditional payday lenders, these apps often waive the right to sue users who don't pay back the initial principal and don't charge interest, but rather ask users for a tip.

If borrowers can't pay back the loan, they can be subject to overdraft fees from their bank and other fees from the payday lender—further exacerbating the debt borrowers face.

From the debut of the world’s first ATM in 1967, to Apple Pay launching in 2014, financial technologies have come a very long way in a relatively short historical period. A colorful visual timeline highlights some of the most important milestones along the way.

Unlike Millennials, who grew up during the Great Recession in 2008, Gen Z has a higher risk appetite and has grown up with more gamified spending platforms, like online gambling and prediction markets. Analysts say Gen Z's risk appetite makes them prime targets for credit card companies like American Express that can sell younger customers on large benefits in exchange for annual fees.

Before authorizing a purchase, card issuers consider whether or not the cardholder has a high enough available credit limit to make the purchase, where the purchase is being made in order to reduce fraud, and more.

Cash advances and payday loans are both short-term loans that allow borrowers to access cash quickly. Payday loans are much shorter-term, often due in two weeks or by the borrower's next paycheck, and have much higher interest rates.

Risks in private credit investing include the industry's lack of transparency and the ability of businesses to borrow more than a bank might allow against their debt. Some borrowers in early 2026, for instance, likely did not expect interest rates to be so high for so long, which could be contributing to an uptick in defaults.

The nonbank financial intermediaries that make up the shadow banking system legally provide services that are similar to those of traditional commercial banks. Although the term isn't used as often as it once was, private credit firms are technically part of the shadow banking system, as are hedge funds, payday lenders, buy now, pay later companies, and more.

Borrowers sometimes roll over loans when they aren't able to pay back the full principal balance and accrued interest. A rollover extends the amount of time the borrower has to repay the loan, but does not decrease the amount of money the borrower has to pay back.

Payday lenders largely oppose rate cap policies, increased borrower risk-assessment requirements, and other regulations that would effectively shutter their industry. In 2025, the payday lending industry lobbied against interest rate limits on payday loan apps.

Venture capitalists have been bullish on the industry’s future in recent years, too. Some estimate that global investment in fintech increased by 12,000% between 2008 and 2020.

In 2016, Google said it would stop allowing payday lenders to advertise on the search engine. According to the company, this decision was made to protect users from deceptive and harmful financial products.

Payday lenders typically make money via finance charges, a percentage or dollar amount that the borrower owes the lender per $100 borrowed. While the finance charge can range from $10 to $30 for every $100 borrowed, this would equate to an annual percentage rate of almost 400 percent for a two-week loan.

In recent years, companies such as Square and Toast have created touch screen technologies prompting customers at coffee shops and casual restaurants to tip upwards of 25%. Despite the interesting psychological conundrum this presents to consumers, one tech columnist argues that shoppers don't need to succumb to the pressure.

In a leveraged buyout or "LBO," private equity funds finance acquisitions with debt secured by the target company's assets and cash flows. The PE firm aims to improve operations and leverage the company's profile to pay down debt, thereby increasing equity value.

Companies can make payments using goods, services, or additional securities instead of cash, helping companies preserve their cash flow. Public BDCs receive roughly 8% of their investment income via PIK.

Autopay has plenty of benefits, such as helping to avoid late fees and streamlining your bill paying process. But some experts say there are a few types of bills that you shouldn't autopay, especially if you're not confident you can pay these bills in full each term. The list includes utility bills and annual subscriptions. Read the full list here.

When a homebuyer finances with a lender, they aren’t necessarily the one footing the bill. After a buyer secures a home loan, the lender can sell the loan to another financial institution or a private institution. That group can later sell that mortgage to investors. This is called securitization.

They also profit from interchange fees, the fee the retailer has to pay the credit card network in order to facilitate a transaction. The fee is typically between 1% and 3% of the transaction amount.

Similar to private equity, private credit is part of the private markets world. Both strategies offer illiquid, privately negotiated investments for privately held companies. Unlike private equity investors, however, private credit investors typically do not take ownership stakes in the companies they invest in.