There’s a ‘phantom debt’ haunting American consumers that could total $687 billion by 2028 — here’s why you need to be careful

How much BNPL debt is on the books?

We don’t know exactly how much BNPL debt is out there — there’s no centralized record of how much is outstanding or in default. What data is available comes mainly from voluntary disclosures by BNPL providers and through consumer surveys conducted by private research firms.

The lack of a clear picture on BNPL debt led Wells Fargo economists Tim Quinlan and Shannon Seery Grein to coin the term “phantom debt.”

Despite this, its popularity only continues to grow. Global spending on BNPL purchases rose from $33 billion in 2019 to $300 billion in 2023, according to a Global Data report, and data from Juniper Research predicts BNLP transaction value will reach $687 billion by 2028.

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The pros and (many) cons of BNPL

If you want the flexibility and convenience of paying for a purchase over time, BNPL provides an alternative to other types of short-term financing, such as credit cards. It’s usually quick and easy to get approved, even if you have a poor credit rating.

This option can provide credit to people without traditional credit cards, and there’s frequently no interest — though some BNPL providers charge interest as high as 30%, so read the fine print.

If you’re late with your BNPL installment payments, you could face late fees and risk hurting your credit score. And if you need to return a purchase, it could be difficult to get your money back — you may need to keep paying installments on time until the issue is resolved with the BNPL provider.

Perhaps the biggest downside of BNPL is what makes it so attractive in the first place: ease of use. This can tempt you into buying things you can’t afford, and might not otherwise purchase. Not being able to afford an item was the top reason (45%) that people used BNPL loans, according to a 2022 Consumer Reports survey.

If you’re not disciplined, BNPL can get you into as much trouble as any other debt. Forty-three percent of those who owe money on a BNPL installment loan were behind on their payments, according to a survey conducted for Bloomberg News by Harris Poll. And 28% of respondents said they were delinquent on other debt because of their BNPL obligations.

If you fall behind on your payments, the BNPL provider can block you until you pay off your loan, though you can still borrow from other lenders. This means you can keep shopping — while continuing to rack up debt and damage your credit score.

How the BNPL landscape is evolving

The people most likely to use BNPL installment loans tend to be those who are already financially vulnerable, according to the Federal Reserve Bank of Boston. That means they’re more likely to have a low credit score and carry a balance on their credit cards from month to month.

But this may be changing. According to research by PYMTS, those with annual incomes above $100,000 are some of the fastest-growing users of BNPL services. PayPal also reports that GenX and Baby Boomers are increasingly using BNPL.

Adoption might also shift more toward older and financially secure consumers as the landscape changes. In May 2024, the Consumer Financial Protection Bureau ruled that BNPL lenders are considered credit card providers and must provide some of the same consumer protections, such as the right to dispute charges and get refunds from the provider after returning a purchase.

At the same time, some BNPL lenders are starting to tighten their lending standards in response to rising delinquencies, according to the Federal Reserve Bank of Boston.

BNPL loans can provide flexibility when paying for purchases and offer short-term credit if it’s not otherwise unavailable. But consumers should be aware of the pitfalls of phantom debt — and understand that BNPL loans must be factored into your personal debt load.