Understanding Buy Now, Pay Later: Drivers, Demographics, and Financial Implications

Abstract

In recent times, Buy Now, Pay Later (BNPL) services have experienced explosive growth in usage, with loan volume in the U.S. increasing 970% during the early stages between 2019–2021. This literature review synthesizes research across three interrelated aspects of BNPL loans: the drivers behind BNPL adoption, the demographics of the service’s users, and its financial implications for consumer behavior and well-being. Detailed analysis reveals that BNPL’s appeal comes from financial drivers (liquidity management, credit accessibility, no-interest financing), functional drivers (convenience, ease of use), and subtle psychological drivers (present bias, framing effects, mental accounting). In addition, demographic research demonstrates that BNPL disproportionately draws younger, female, lower-income, and minority consumers who have subprime credit scores. Financial implications research shows that BNPL adoption correlates with increased spending frequency (9%) and amount (10.5%), reduced emergency savings, higher late payment rates (10.5% in 2021), and lowered overall financial well-being. However, the direction of the cause-and-effect relationship remains unclear: whether financially vulnerable consumers self-select into using BNPL as a payment method or whether BNPL usage specifically causes financial harm. This review article identifies crucial research gaps and asserts that current regulations inadequately protect consumers from documented, predictable risks, especially in vulnerable populations.