Why Consumers Don’t Think BNPL Is ‘Debt’ (and Why It Matters)

'Buy Now, Pay Later' is often positioned as a new way of buying, not as borrowing. While it is indeed debt, credit bureaus disagree on how it should factor into credit scores.

When the use of buy now, pay later hits the pages of Psychology Today, you know that it’s arrived.

In a column titled, “Beware of the ‘Buy Now, Pay Later’ Psychological Pitfall,” psychotherapist and mental health author Joyce Marter wrote of the booming numbers. Then she told of a troubled BNPL user she knows.

“My client, Jessica, found a Givenchy black dress online that she couldn’t live without. The $2,000 price tag was way beyond her budget, but when she discovered she could buy now and pay later, that little black dress seemed not so far out of reach. Jessica committed to four $500 payments, and it seemed ‘doable’ until she needed new tires for her car.”

Adds Marter: “Now she was in a real financial bind — and one that negatively impacted her mental health as financial anxiety and worry consumed her mind.”

“Psychologically, the four payments make the hefty price tag sound better by presenting them in seemingly manageable bites,” Marter wrote.

That point is one of the primary sales pitches BNPL companies make to sellers to offer their plans with subsidized interest. They underscore that given the opportunity to buy via interest-free installments, people will spend more.

(Marter did not mention if “Jessica” had the opportunity to buy those tires on a BNPL plan. Tirerack.com offers financing from tire makers, as well as from Affirm, a big BNPL player. Affirm’s offering is branded as “Drive now, pay later” financing.)

Taking a Behavioral Science Look at BNPL

All consumer financing has be considered in relation to all the options a particular person has, according to Perry Wright, Senior Behavioral Researcher at The Center for Advanced Hindsight at Duke University, which runs the Common Cents Lab.

Clearly the long-term popularity of credit cards speaks to people’s propensity to spend, but BNPL can help consumers get into credit trouble faster, Wright acknowledges. However when compared to payday loans and other stopgap credit that people in a crunch tap, interest-free, fee-free BNPL doesn’t seem as bad.

Wright says behavioral economics helps researchers understand how people use credit and what practices render the greatest happiness and the least pain. One aspect to appreciate about BNPL is that the merchant-subsidized form of it tends to isolate the purchase in the consumer’s mind, according to Wright.

Typically when BNPL is presented as an option, pricing is reduced to the size and number of installments, and it is item by item, the way many people shop. This is a bit different from adding one more purchase to a credit card line that’s already been partially rolled over.

In a sense, BNPL purchasing resembles a pattern that Wright says researchers have noted in supermarkets. When people enter the aisle for, say ice cream, they tend to weigh the decision to go with premium, mass market or store brand on its own, not in relation the what else will go into the shopping cart.

“A grocery store trip involves 50 little financial decisions,” says Wright.

The 'Magic' of Consumer Credit:

Both BNPL and credit cards divorce the pain of payment from the engagement of buying.

A downside of BNPL financing is that because each purchase represents a separate credit, the object of that purchase sticks in the consumer’s memory, versus a credit card balance that tends to “anonymize” purchases over time, according to Wright.

He gives the example of buying a snowboard. With BNPL financing a consumer could be tempted to buy a really fancy one. But, especially if a longer-term plan is chosen, the payments may outlast the happiness. Payments themselves, no matter the frequency, are automatically “happiness-draining” events.

Read More About Buy Now, Pay Later Plans:

BNPL and the Credit Reporting Industry

The impact of BNPL on consumers naturally is of keen interest to the major credit bureaus. However, the rapid uptake and the continual change has made it difficult for the big three to incorporate BNPL into their models.

BNPL is a moving target, according to Mark Luber, Chief Product Officer for U.S. Information Solutions at Equifax. When BNPL got started in this country it fell into a narrowly defined structure, but product design, options and plan durations are changing, such that “the lines really continue to blur,” says Luber.

BNPL started with a somewhat distanced relationship with the traditional credit reporting process, with some BNPL companies making a selling point of not reporting use of the plans to bureaus. On the other hand, the companies typically performed at least a “soft” credit check before approving a plan.

Buy Now, Pay Later Shakes Things Up:

Among the big three credit bureaus, some major differences in approach to BNPL are developing.

The Financial Brand spoke to credit data officials at Experian and Equifax, and obtained a statement from TransUnion.

Equifax and Experian have taken different tacks in approaching BNPL reporting.

Equifax announced in late 2021 that it was adding BNPL payment information to its credit reports in the first quarter of 2022. The company noted in its announcement that research indicated that people whose BNPL behavior was included in credit scoring models saw an average improvement of 13 points. People with credit records of two years or less saw a greater increase, on average 21 points.

Luber says this could help both newcomers trying to build credit and others trying to rebuild it. Equifax is trying to convince BNPL firms to participate more fully in using bureaus by reporting consumer performance. Several are working with Equifax at one stage or another and Luber hopes to add more.

“Buy now, pay later is entry-level credit for many consumers,” says Luber. Building this addition to the database will be a work in progress, he adds, as Equifax learns how to work with the more frequent payment schedules of some BNPL plans.

At Experian a different strategy has emerged. Rather than pull BNPL into its mainstream database, the company plans to debut a specialty function, The Buy Now, Pay Later Bureau. (The main bureaus set up such dedicated functions from time to time.) The company says that it is doing this to improve information about BNPL while avoiding negative impact on consumer credit scores. While the company works with some BNPL providers, it believes common scoring models weren’t made to work with BNPL data.

Just what will wind up qualifying for inclusion in the new specialty bureau is still under review, according to Greg Wright, EVP/Chief Product Officer for Experian Consumer Information Services.


“We don’t have a bright line definition yet,” he says. He says programs that are more part of credit card offerings, such as the American Express Pay It Plan It and Citi Flex Pay, would have to be reviewed one by one, before being included with “pay in four” and similar BNPL plans.

Wright says the company intends to devise a BNPL credit score, distinct from that based on traditional records. He foresees that lenders offering major credits, such as mortgages, would want to draw on both the main database as well as the specialty bureau to see a consumer’s total debt picture. Likewise, he suspects BNPL vendors will start pulling from both sources to get a better picture of overall credit usage.

In response to our inquiry, TransUnion issued a statement, saying, in part, that both BNPL in its broader sense and point of sale installment financing “are net new types of credit obligations that the existing credit ecosystem in the U.S. is not ready to support. The frequent transactional nature of these loans have the potential to unduly negatively impact consumers even when they pay as agreed.”

The statement elaborates: “… the reporting of these trades represents an unprecedented opportunity to promote financial inclusion. We’re bringing a solution to market this year [2022] that will make this data available without having an undue impact on today’s scoring models. We envision that once models adjust, these trades will be able to become part of the core credit report, and be integrated into traditional industry scoring models.”

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