America’s credit card addiction is well documented, but there exists a potentially more troubling segment of the credit market bubbling beneath the surface.

“Buy now, pay later” (BNPL) loans provide consumers with a convenient way to divide their purchases into smaller installments, but according to Wells Fargo senior economist Tim Quinlan, these programs make it easier for society’s most vulnerable to accumulate more debt.

“People need to be more awake to the risk of BNPL,” Quinlan told Bloomberg in an interview.

Regulators also need to be aware of the risks because “you don’t want [consumers] tied into a situation where a litany of small payments traps them into one really big problem,” he said.

Unfortunately, that’s exactly what’s happening.

Quinlan estimates that the BNPL transaction volumes are growing “in the neighborhood of $50 billion” per year, or “a third of the transaction increase in credit card volume.”

Now, more and more consumers are falling behind on their payments.

According to a Harris Poll survey for Bloomberg News, 43% of consumers who are on the hook for BNPL loans are behind on payments. More than a quarter (28%) admitted they were delinquent on other debt because of their BNPL loans.

The survey also revealed that 54% of BNPL users were spending more than they could afford. A third (34%) are worse off financially because of these programs.

A dangerous debt trap

For millions of Americans, BNPL loans have become a gateway drug into other forms of debt.

Whether it’s a matter of convenience, avoiding high interest rates, or the need to tap into another form of revolving credit, consumers are increasingly opting to pay for necessities in installments.

Ed DeHaan, a professor of accounting at Stanford Graduate School of Business, called BNPL a “slick innovation” that claims to be helping consumers but is actually making them worse off in the long run.

Experts say BNPL services exploded during the pandemic, especially on mobile shopping platforms, and have since become sticky.

BNPL services “have consumers who are very plugged in,” said Vivek Pandya, lead analyst at Adobe Digital Insights. Getting them to give up that convenience will be difficult, especially when they’ve maxed out their other revolving credit lines.

According to Fed research, lower-income and “financially fragile” consumers are more likely to rely on BNPL loans to pay for everyday expenses valued at less than $250.

A big problem is that many consumers don’t have a clear understanding of how their BNPL services work.

“Many ‘buy now, pay later’ plans advertise that they don’t charge interest,” said Kevin Brasler, executive editor at Washington Consumers’ Checkbook. “Some do, though, and so it seems like a simple payment arrangement.”

“For many consumers, they’ve become big debt traps,” he said.