Pay Later, Pay More? The Hidden Costs and Risks of ‘Buy Now, Pay Later’ Services

Buy Now, Pay Later (BNPL) products have revolutionised digital commerce in the last few years. The attraction is self-evident: who wouldn’t desire buying today and paying over a series of instalments, which are most of the time “interest-free”? To many online consumers, particularly the younger generation with limited credit-card options, BNPL appears as a virtual magic. But have you ever stopped to think about what actually lies behind that slick, painless promise? As consumers collect multiple BNPL debts or fall behind on a payment, the narrative can turn from an ease of cost into a debt trap.

One of the strongest psychological explanations for BNPL’s popularity is how it helps alleviate the “pain of paying”. Consider this: isn’t it less painful to commit to paying ₹2,000 in four instalments than ₹8,000 upfront? Behavioural finance tells us that individuals tend to prefer postponing costs, a phenomenon researchers refer to as “temporal discounting”. BNPL plays subtly into that bias, allowing one to more easily make a commitment purchase without instantaneously feeling the sting. Additionally, by way of mental accounting, individuals act as if they are paying for something minor with smaller instalments, even though technically they are not. This subtle mental trick encourages spending on products one might otherwise skip if full payment were required upfront.

And then there’s the social factor. How many times have you heard influencers say “I just paid with Klarna” or “split with Zest”? Younger consumers are particularly influenced by social proof. When all the people around them are doing something, suddenly it feels normal, even clever. The more peers utilise BNPL, the more others do the same, reinforcing a feeling that this is just “how people pay” these days. But should financial behaviour be determined by peer pressure?

Of course, there is a functional explanation for why BNPL makes people feel empowered. For those whose incomes are irregular: gig-economy workers, freelancers, or new professionals, BNPL provides a means of controlling cash flow. It serves as a bridge, permitting individuals to access goods immediately and pay later. In economies such as India, where formal access to credit is still scarce, the ability to adapt can be freedom-giving. But what begins as a smart method to level out costs can readily promote impulse purchasing: as the initial cost appears smaller, individuals spend more, sometimes much more than they intended. A benchmark study that compared 75,000 BNPL consumers with 200,000 non-consumers found adoption fuelled purchase probability from 17% to 26% and mean basket sizes by about 10%.

Around the world, BNPL consumers are typically younger, less credit-mature, and more financially stressed. The Bank for International Settlements discovered that they tend to be more indebted and more likely to default. In India, the most active users are 26 to 35-year-olds, tech-savvy, upwardly mobile, but sometimes with little in the way of an underlying credit history. It’s no wonder that BNPL seems like a desirable shortcut to riches. But is it?

Behind the welcoming “zero-interest” catchphrase is a network of concealed fees. The moment a payment is not made, late charges and fines per missed deadline start adding up. Some lenders also impose processing fees or charges that consumers are likely to miss. That “free” credit does not appear to be so free after all. Gradually, the minor fees build up into substantial debt, leaving many users unaware.

Credit reporting throws another curveball. Did you ever consider how BNPL impacts your credit score? The response isn’t straightforward. Providers report payments to credit agencies; some of them don’t. Through 2025, firms such as Affirm have started reporting information, so late payments or defaults can damage your credit health. Even without late payments, having several open BNPL lines might be an indication to lenders that an individual is financially strained. A more subtle but more insidious risk is what we could term “debt creep”. A lot of people have several BNPL accounts across various apps, each with unique due dates and reminders. Without a summary view, it’s hard to keep track. A single missed instalment can spread like cancer into a penalty cascade. Gradually, this can make a well-meaning convenience turn into a trap for debt. Have you ever missed a bill just because you forgot where it was on the app? That’s the new type of digital disorganisation many BNPL customers experience now.

Adding to the confusion are the loopholes in consumer protection. In contrast to traditional loans, BNPL exists in a loosely regulated grey area. Contracts and terms are typed up in fine print, with key information hidden behind legalese. Some providers include clauses that limit consumer rights or make dispute resolution nearly impossible. In India, a study from Dvara Research and Consulting (2024) found that several BNPL platforms do not highlight the most important cost details, while providing a somewhat different shift of the risk to the user. Many consumers, for their part, are confused about how refunds, cancellations, or delayed delivery are understood in the context of scheduled repayments.It’s possible that returning an item and nevertheless being charged for the instalment occurs more frequently than you think. Throughout the world, regulations and regulatory authorities are becoming more aware of these matters. More and more countries are starting to require standardised disclosures, credit-reporting, and late-fee caps. In the U.S. alone, by the end of 2025, BNPL will be included in FICO credit scoring, which is a development that could alter consumer perspectives around these products. But regulation alone will not do the trick, not always. Safety in the real world can only be accomplished through collaboration between the regulators, the providers, and the consumers themselves. 

Self-regulation is arising as well: fintech firms are proactively setting their underwriting standards, allowing disclosures, and developing risk-management frameworks for the purpose of preserving users’ trust. So what does one do? For customers, awareness comes first. Have you ever read the terms and conditions prior to clicking “Agree”? Not most people. If you’re aware of late fees, processing fees, and how or when defaults show up on your credit report, you can avoid being surprised by nasty fees. Another best practice is to maintain a record of all your BNPL purchases, either in a spreadsheet or a personal-finance app. Use it for necessary or planned purchases, not as a regular indulgence and always ask yourself: would I buy this if I were to pay the entire purchase now? Providers need to find a similar balance between innovation and responsibility. Doesn’t technology have the dual purpose of protecting users as well as stimulating them? Improved communication, default reminders, and streamlined dashboards that reflect all live plans can make it easier for users to manage their money. Regulators, too, should see to it that protection does not lag behind innovation. Encompassing BNPL within formal credit legislations, imposing disclosure standards, and requiring grievance-redressal mechanisms can make the environment safer for everyone involved. After all, BNPL is a sign of financial innovation but also a mirror image of our contemporary behaviour of spending. It survives on our need for instant gratification but reveals the costs of reckless consumption. 

The future of BNPL hinges on achieving a precarious balance: enabling consumers but avoiding overreach. Without adequate awareness, prudent provider behaviour, and regulatory governance, “interest-free convenience” can insidiously become a cost. But with digital literacy, responsible-lending principles, and sound policy frameworks, BNPL could become a truly inclusive credit instrument that fills gaps with regard to financial access rather than creating gaps.

When the next site flashes “Buy Now, Pay Later” at you while you’re checking out, take a moment to pause and engage your own reflection and ask: Do I really need it now? Can I afford the instalments afterwards? The answers could well determine whether BNPL becomes your financial ally or your silent nemesis.

Citations:

Chin Junior. (2024, October 14). The Hidden Costs of “Buy Now, Pay Later”. Investor & Financial Education Council. https://www.ifec.org.hk/web/en/blog/2024/10/buy-now-pay-later-fees.page

Kessel, A. (2025, August 12). The Hidden Dangers of ‘Buy Now, Pay Later’: Why Nearly 1 in 4 Americans Are at Risk. Investopedia. https://www.gsb.stanford.edu/insights/hidden-costs-clicking-buy-now-pay-later-button

Cornelli, G., Gambacorta, L., & Pancotto, L. (2023, December 4). Buy now, pay later: a cross-country analysis. BIS Quarterly Review. https://www.investopedia.com/the-hidden-dangers-of-buy-now-pay-later-why-nearly-1-in-4-americans-are-at-risk-11789074

Cornelli, G., Gambacorta, L., & Pancotto, L. (2023, December). Buy now, pay later: A cross-country analysis. Bank for International Settlements https://www.bis.org/publ/qtrpdf/r_qt2312e.htm

Goyal, N. (2025, February 4). Buy now, pay later: Hidden credit risks in the digital payment revolution. Forbes. https://www.forbes.com/councils/forbesfinancecouncil/2025/02/04/buy-now-pay-later-hidden-credit-risks-in-the-digital-payment-revolution

Kumar, A., Salo, J., & Bezawada, R. (2024). The effects of buy now, pay later (BNPL) on customers’ online purchase behaviour. Journal of Retailing https://www.sciencedirect.com/science/article/pii/S0022435924000654