'Buy now, pay later': People are increasingly using these loans to pay for rent, food and other basic expenses.

Buy-now-pay-later (BNPL) loans were initially promoted as a way to help consumers pay for small purchases, such as electronics or clothing. Now, financial companies are increasingly offering such loans as a tool for covering essential expenses, such as rent, groceries, electricity bills, and even medical bills, writes CBS News.

Consumer advocates warn that using such loans for everyday needs and critical payments is risky. They say lenders often fail to fully disclose the potential costs of these short-term loans. A recent survey by Protect Borrowers, a nonprofit that investigates financial abuse, found that many BNPL loan users use them specifically to pay for basic expenses, including rent and food.

Ariel Nelson, a senior attorney at the National Consumer Law Center, a nonprofit advocacy group that advocates for low-income people, notes that the increased use of such loans to pay rent and other essential expenses shows how much pressure many Americans, exhausted by the high inflation of recent years, are feeling due to the cost of living.

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"The most useful thing about these loans is that they reveal the real state of affordability in the country: people can't pay their rent and utilities on time and in one payment," Nelson said. "At best, such loans can serve as a temporary 'patch.' But even then, they're not without risks."

Increased dependence

BNPL loans emerged in the 2010s and gained widespread popularity among consumers in the early 2020s. They allow larger purchases to be split into smaller, interest-free payments, typically in four instalments over several weeks or months.

One of the key reasons for their popularity is the ability to obtain such a loan right at the time of purchase, online or in-store, with minimal information and no credit check.

Most companies providing such loans make money from a fixed monthly fee and a percentage of the loan amount. These products often have no late fees, but many lenders refuse new loans to clients who have previously missed payments.

As a financial innovation, BNPL loans have proven extremely popular, as demonstrated by the high demand for short-term installment loans available right at the time of purchase. According to a study by Federal Reserve economists, Americans will have borrowed $160 billion this way in 2025—roughly double the amount two years earlier. Over $96 billion of this amount was interest-free.

According to a recent survey by online lending platform LendingTree, more than half of such borrowers (54%) said they would not be able to make ends meet without these loans.

While users previously took out BNPL loans to stretch out purchases like designer clothing or gaming consoles, they are now increasingly using them to pay for essential expenses, said Matt Schultz, chief credit analyst at LendingTree.

"BNPL companies have done a great job of making these loans accessible for almost any expense," he noted.

Nearly 30% of BNPL users reported using this type of loan to purchase groceries, compared to 14% two years earlier, according to a LendingTree survey. Another 23% of borrowers said they took out such loans to pay for medical, dental, or veterinary services, as well as rent.

"Theoretically, if you can make your payment on time and there are no additional costs, this could help," said Jennifer Zhang, policy, research, and data analyst at Protect Borrowers. "But these products are often riddled with late fees and hidden charges that can add up and become a source of serious financial problems."

Flexibility for borrowers or the risk of a debt trap?

In January, San Francisco-based Affirm launched a pilot project allowing renters to split their monthly rent into two installments in partnership with Esusu Pay, a service that offers flexible rent payment options. The companies claim this gives renters more flexibility and ensures timely payments to landlords.

While these loans carry no interest or late fees, users who want to pay their rent in two installments must sign up for a subscription, which costs between $35 and $50 per month.

Neither Affirm nor Esusu responded to requests for comment on allegations that such loans are expensive for users of the service.

Consumer advocates believe that BNPL products can push people into even greater debt, especially if the borrower takes out multiple loans from different companies with overlapping repayment terms. Since payments are automatically debited from a bank account, they can quickly deplete a balance and lead to overdraft fees.

"These products are designed to look cheap, but they're not," Nelson explained. "They may include monthly membership or subscription fees, late fees, processing fees, and possible insufficient funds fees."

Another lender, New York-based Flex, offers loans that let you split payments for rent, utilities, cell phone, internet, and car payments.

Borrowers pay a standard monthly fee of $6 for the option to split their rent payment, as well as 3% of the loan amount and a 0,5% processing fee. For example, with a rent of $1500, a client pays between $30 and $40 per month for this loan, Flex reported.

The company pays the landlord in full on the first day of the month or on the due date. Flex Vice President of Public Relations Ryan Metcalf described this product as a way to "buy time."

"This is a solution for tenants whose income receipt dates and rent and other bill payments clash," he explained. "We're not selling money, we're selling time."

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LendingTree's Schultz noted that, like any financial instrument, such loans can help manage a budget, but only if used wisely.

"It can be convenient because there's no interest and the payments are predictable, but it's very easy to lose control," he stressed, adding that the ease of obtaining such loans makes it easier to overspend.

"If someone has little experience with loans and managing those obligations, this can be a serious problem," Schultz concluded.

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