Each holiday season brings a predictable surge in consumer spending, but the way shoppers finance that spending is changing rapidly. While credit cards once dominated online checkouts, the growing popularity of buy now, pay later (BNPL) arrangements is changing how households manage short-term expenses.

BNPL refers to a short-term payment plan that retailers offer to shoppers at the point of purchase. The most common model is “pay-in-four” — rather than paying the full amount up front, the shopper pays 25 per cent immediately and the remaining 75 per cent over three equal instalments, typically debited automatically every two weeks.

This structure makes BNPL feel relatively frictionless and, for many shoppers, deceptively inexpensive.

Read more: The hidden risks of buy now, pay later: What shoppers need to know

In 2024, BNPL accounted for five per cent of e-commerce transactions, a proportion expected to increase by 58 per cent by 2030. In comparison, credit cards accounted for 20 per cent of e-commerce transactions in 2024, and this share is projected to increase by only three per cent by 2030.

With half of consumers planning to rely on BNPL for their holiday purchases in 2025, understanding this shift has never been more timely.

As households prepare for another holiday season of spending, BNPL will appear across many checkout pages with promises of convenience and flexibility. But before clicking “pay later,” consumers should recognize that these loans carry real financial consequences.

Why is BNPL so attractive?

Two factors explain BNPL’s appeal. First, the time value of money suggests that funds available in the present are more valuable than the same amount in the future. By reducing the immediate out-of-pocket cost, it offers the impression of greater financial breathing room.

Many consumers also believe BNPL is always interest-free. While the pay-in-four model usually carries no interest, monthly payment plans usually do, sometimes as high as 35.99 per cent. The comparable highest annual percentage rate for credit cards is 26 per cent.

Second, BNPL loan provider companies such as Klarna, Affirm and Afterpay usually run only “soft” credit checks, which don’t affect a borrower’s credit score. This has led to a widespread assumption that BNPL primarily serves individuals with limited credit access.

But in practice, usage spans income levels. In Canada, for example, 40 per cent of BNPL users report high household incomes.

Such widespread use, however, is not without risks.

Why is BNPL risky?

Despite its user-friendly design, BNPL changes how people evaluate purchases. Its psychological effects can encourage overspending and contribute to longer-term financial strain.

BNPL can lead shoppers to prioritize immediate gratification over the delayed pain of payment, instilling what I call a “buy now, regret later” mentality.

Research has found that BNPL adoption increases shoppers’ purchase frequency and purchase amount. The effect is stronger for shoppers who are promotion-sensitive, young and low-income.

More worryingly, BNPL users incur higher overdraft charges, credit card interest and late fees than non-users. Shoppers are particularly vulnerable to overspending during the holiday season. While spending increases in holiday seasons, income does not, leading to debt accumulation.

5 points to keep in mind

Before choosing BNPL at checkout, shoppers should take a moment to consider what they’re agreeing to. The five points below can help consumers navigate these services more safely and avoid common pitfalls.

1. BNPL appears under other names. Not all instalment plans are described as BNPL, so make sure to read terms carefully to avoid being misled by marketing language.

2. BNPL can amount to a loan on top of a loan. When payments are drawn from a credit card, you are effectively borrowing twice and incurring a double risk. If an automatic debit fails, late payment fees can be substantial. Do not be misled when the checkout page states “you’ll never pay interest or late fees.”

3. Governments are increasingly asking BNPL companies to conduct hard credit checks and report defaulters to other financial institutions and governments. As a result, assurances that “your score won’t be affected” may no longer be reliable.

4. Consumer protection remains uneven. It’s unclear which government agency (if any) oversees BNPL complaints. Until regulations are fully developed and consistently enforced, your financial security is your responsibility.

5. BNPL expands the number of companies that handle your data. With credit cards, one financial institution manages the transaction. Under BNPL, consumers may shop at numerous retailers using different BNPL providers. Tracking which provider handled which purchase can be difficult and complicate disputes over unrecognized credit card charges.

3 questions to ask yourself before using BNPL

BNPL can be useful when employed thoughtfully, but it’s not suitable for every shopper or every purchase. Asking yourself the following questions can help you determine whether BNPL aligns with your financial habits and long-term goals.

  1. Who is offering the loan? Review the BNPL provider’s frequently asked questions and payment policies. Compare firms such as Affirm, PayPal, Afterpay and Klarna. Obfuscated and unclear answers signal less transparency, and you should avoid using such companies.

  2. Do you tend to buy products on impulse and lack financial self-control? If yes, be mindful of the risks of BNPL usage, as it may amplify that tendency.

  3. Would strengthening your financial literacy improve your decision-making? If so, consider subscribing to reliable financial education resources before relying heavily on BNPL.

BNPL is a fintech innovation. Used responsibly, it can help shoppers maintain liquidity. However, used carelessly, it can make it easier for shoppers to accumulate debt. As the holiday season approaches, an informed approach will help you appreciate its benefits and avoid risks.

This article is republished from The Conversation, a nonprofit, independent news organization bringing you facts and trustworthy analysis to help you make sense of our complex world. It was written by: Vivek Astvansh, McGill University

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Vivek Astvansh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.